Europea faces tough path to recovery

BRUSSELS (AP) -- Europe may join the United States in leaving recession when growth figures come out next month -- but lackluster jobs and inflation data released Friday strongly suggest the continent's hoped-for recovery will be slow and fragile.

A day after official figures showed the U.S. economy finally returned to growth, the data released by the EU statistics agency Eurostat gave fewer reasons for joy: eurozone unemployment rose to a 10-year high of 9.7 percent in September.

Consumer prices fell on the year for the fifth consecutive month -- good for hard-pressed consumers, but an ominous sign of just how shaky demand for good remains.

The 0.1 percent annual drop in consumer prices was more moderate than September's 0.3 percent drop and does suggest companies and consumers are slowly spending more after a long freeze in demand.

The European Union will reveal growth figures on Nov. 13 for the 16 countries that use the euro and for the broader, 27-member EU. Many expect the eurozone -- with its 327 million people and euro9.3 trillion ($14 trillion) economy -- to show at least some growth, after shrinking 4.8 percent in the second quarter from the same quarter the year before.

Compared to the first quarter, the eurozone economy contracted only 0.2 percent in the second, indicating the recession had at least bottomed out.

Major European companies gave subdued outlooks as they released their quarterly earnings this week. Chemical firm BASF, the world's largest, warned that "major risks still exist" and "the recovery will be slow and uneven." Auto maker Volkswagen reported net income fell 86 percent and chief financial office Hans Dieter Poetsch said, "We predict no substantial global recovery in 2010."

Europe's growth path -- a steady, but slow, emergence from recession -- faces some of the same hurdles as does the U.S. Although the world's largest economy was confirmed to have exited recession in the third quarter with annualized growth of 3.5 percent, analysts warn that -- like Europe -- it is still saddled with increasing unemployment and swelling government debt.

Both Europe and the U.S. benefitted from stimulus such as cash-for-clunkers incentives for auto buyers. That program has been wound up in the U.S. and in Germany, Europe's single largest economy.

In Asia, where governments have had to spend less on bailouts and interest rates are in most countries not as low as in the U.S. and Europe, recovery is gaining a better grip. China's economy, for example, grew at an 8.9 percent rate in the third quarter. Even in Japan, whose economy more closely resembles the U.S. or Europe, the unemployment rate has fallen for two months and the Bank of Japan is considering removing some stimulus measures.

Friday's data shows the effects of the stronger euro exchange rate, which recently hit a 14-month high of $1.5020 against the dollar, hurting Europe's crucial export sector and dampening the effect of higher oil prices. It's a burden the U.S. does not face, with the dollar weakening substantially in recent years and giving a boost to exporters.

Of all the trends, however, it is the steady rise in joblessness that worries experts most. Across the entire European Union, some 22.12 million people are now out of work, 15.32 million of them in the eurozone.

"Unemployment is a lagging indicator and the depth and length of the recession that most countries have suffered will continue to impact for some time to come," said Howard Archer, economist at IHS Global Insight in London.

"Furthermore, even though the eurozone economy highly likely returned to expansion in the third quarter and activity is continuing to improve in the fourth quarter, growth is unlikely to be strong enough to generate net jobs for some considerable time," Archer said.

Rising unemployment is expected to weigh on consumer spending, and while billions of euros (dollars) in stimulus measures by governments and central banks have helped in the short term, those efforts are only temporary.

European Union leaders insisted Friday that it was too soon to withdraw all their various stimulus programs. They said they would wait until a recover "is fully secured," but avoided setting a date until they meet again for talks in December.

They also warned that reforms were required "to prevent high unemployment levels from becoming persistent" by making labor markets more flexible.