By Simone Meier Aug. 13 (Bloomberg) -- The euro region’s economy barely contracted in the second quarter as Germany and France unexpectedly returned to growth, suggesting Europe’s worst recession since World War II is coming to an end. Gross domestic product fell 0.1 percent from the first quarter, when it plunged 2.5 percent, the most since the euro- area data were first compiled in 1995, the European Union’s statistics office in Luxembourg said today. Economists had estimated GDP declined 0.5 percent in the three months through June, the median of 32 forecasts in a Bloomberg survey showed. Stocks rose and the euro climbed after today’s figures added to evidence the worst of the global slump has passed. Demand for European exports is improving just as government rescue packages and lower interest rates support spending at home. While the data suggest the European Central Bank won’t need to add to stimulus measures, rising unemployment across the region may still stifle consumer spending. “There is a more-than-decent chance that euro-zone economic activity has now hit a bottom and will expand again in the third quarter, as many other economies follow Germany and France out of recession,” said Martin van Vliet, senior economist at ING Bank in Amsterdam. “However, we fear that the recovery will be relatively slow and protracted.” The euro rose to $1.4271 at 11:05 a.m. in London, up 0.6 percent on the day. The Dow Jones Stoxx 600 Index of European shares climbed 1.1 percent to 231.11. The yield on the German 10-year bond rose 0.03 percentage point to 3.48 percent. Largest Economy In Germany, Europe’s largest economy, second-quarter GDP rose a seasonally adjusted 0.3 percent from the first quarter, when it dropped 3.5 percent. The French economy also expanded 0.3 percent in the latest quarter. Italy and the Netherlands were a drag on the euro-area economy. Italy’s economy contracted 0.5 percent and Dutch GDP declined 0.9 percent in the second quarter. The economic improvement in Germany comes as Chancellor Angela Merkel campaigns for a second term ahead of national elections on Sept. 27. Merkel’s Christian Democratic bloc and her preferred coalition partner, the Free Democratic Party, held at 51 percent in a Forsa poll for Stern magazine released on Aug. 11. The Social Democrats had 21 percent support. “Merkel will be in a position to exploit the early return to growth, but I would be surprised if she did it in strong words,” said Laurent Bilke, a senior economist at Nomura in London. “Some caution is still warranted as long as the labor market continues to weaken.” Shifting Fortunes The figures highlight shifting fortunes across Europe’s largest economies. In the U.K., where Prime Minister Gordon Brown is struggling to shore up his popularity before elections due in June, GDP contracted 0.8 percent in the second quarter, more than twice what economists forecast. Economies in the Czech Republic, Hungary and Romania also continued to shrink. Euro-area GDP has declined for five straight quarters, the longest contraction since the data series started 14 years ago. The statistics office is scheduled to publish a breakdown of second-quarter GDP on Sept. 2. While signs of a global recovery have prompted speculation about central banks’ exit strategies, the ECB is showing little willingness to depart from its current strategy of offering banks unlimited cash and keeping rates at a record low. ‘Never Pre-Commit’ ECB President Jean-Claude Trichet said last week that council members “never pre-commit in any respect on the timing of various measures” after the bank last month started buying covered bonds. Federal Reserve policy makers yesterday signaled they will avoid any rush to end their own efforts to strengthen a U.S. recovery. “The ECB won’t make a big mistake if they exit a little later,” said Holger Schmieding, chief European economist at Bank of America-Merrill Lynch in London. “They don’t need to rush.” The global economy may already be past the worst of the slump. Confidence in the world economy surged to a 22-month high in August, a Bloomberg survey of users on six continents showed yesterday. The U.S. economy, the world’s biggest, contracted at a less-than-forecast 1 percent annual rate in the second quarter after shrinking 6.4 percent in the previous three months. In Japan, household sentiment rose for a seventh month in July. The ECB, which kept its key interest rate at a record low of 1 percent last week, has offered unlimited cash to banks over 12 months and started buying covered bonds to fight the slump. The Frankfurt-based central bank predicts the euro-area economy will shrink about 4.6 percent this year and around 0.3 percent in 2010. It will release revised forecasts next month. ‘Past the Trough’ “The second half of the year will show if the euro area is past the trough,” ECB council member Erkki Liikanen told Finland’s YLE TV1 in an interview yesterday. “There are signs that the freefall is over” in the world economy. Anheuser-Busch InBev NV, the Leuven, Belgium-based brewer formed in a $52 billion takeover last year, today reported a 13 percent gain in second-quarter earnings. Walldorf, Germany-based SAP AG, the world’s largest maker of business-management software, on July 29 raised its forecast for 2009 profitability. “It was pretty clear that exports had more or less stabilized after making absolutely savage news over the past quarters,” Klaus Baader, chief European economist at Societe Generale SA in London, said today in a Bloomberg Television interview. “It’s going to be very, very difficult to gain much momentum from here. There are plenty of headwinds.” With some of the region’s largest companies including Amsterdam-based ING Groep NV and Germany’s Siemens AG cutting jobs, consumers may keep spending plans on hold. European retail sales unexpectedly declined in June. The European Commission forecasts unemployment will reach 11.5 percent next year. From a year earlier, the euro-area economy shrank 4.6 percent in the second quarter, after a 4.9 percent contraction in the first three months of the year, today’s report showed. To contact the reporter on this story: Simone Meier in Frankfurt at smeier@bloomberg.net

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