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7/20/13

Europe's Economy Will Rebound - by Jonathan Bucks

After almost six years of crisis induced by governments' overreliance on borrowings -- and a near-death experience for the euro—economic indicators suggest that, finally, the worst is over.

The European Commission, the European Union's executive body, expects the 27-nation EU to emerge from recession in the fourth quarter of this year, with economic expansion accelerating to a 1.4% growth rate in 2014. The euro zone, comprising the 17 countries that use the common currency, is projected to expand by 1.2%.

Prevailing conditions for a recovery, from an easy-money monetary policy to a scaling back of austerity measures, bode well. The euro-zone purchasing managers' index hit a 16-month high of 48.8 in June (a reading above 50 signals expansion), with improvement in Ireland, stability in Spain, and diminished declines in France, Italy, and the Netherlands. Business confidence in Germany improved in May, and consumer confidence in Italy reached its highest level in more than a year. Retail sales in the United Kingdom jumped 0.9% in the second quarter.

Among western Europe's economies, Germany, the U.K., and Ireland are expected to enjoy the strongest gains in 2014. Germany's gross domestic product could climb 1.8%, considerably snappier than this year's expected uptick of 0.4%, while Britain's could expand by 1.7%, versus an estimated 0.6% this year. Ireland's much smaller economy could enjoy a 2.2% growth spurt in 2014, double this year's likely gain.

Even laggards such as Italy, Spain, and Portugal could shake off the yoke of recession in 2014, showing economic gains for the first time in several years. The Spanish economy, for one, could expand by 0.9% next year, a level that, while far from robust, represents substantial progress after two years of contraction.

Read more: Europe's Economy Will Rebound - Barrons.com

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