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June 23, 2017

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German economic rebound fails to end eurozone recession

The eurozone economy is facing a prolonged recession with the prospects of a rebound in Germany failing to help lift the embattled region out of its downward economic spiral.

While key economic indicators point to growth in Germany — Europe's biggest economy — gaining momentum as the year unfolds, data released Friday showed its partners in the 17-member currency bloc facing another bleak year of fiscal austerity and recession.

The European Commission said it expected the eurozone economy to shrink by 0.3 percent this year, but with German gross domestic product (GDP) expanding by 0.5 percent this year before growing by a solid 2-percent in 2014.

"While most other eurozone countries are groaning under the burdens of reforms, austerity and recession, the German economy continues playing in a league of its own," said ING Bank economist Carsten Brzeski.

Further underscoring Germany's growth prospects in the coming months, the nation's closely watched business confidence index rose for the fourth consecutive month in February, surging to a ten-month high of 107.4 points.

"The Ifo has gone through the roof," said Commerzbank economist Ralph Solveen.

"This is a further indication that German economic growth is likely to recover this year, as exports should benefit from an improvement in world demand and progressive resolution of the European sovereign debt crisis," said Caroline Newhouse, economist with France's BNP Paribas.

The higher-than-expected rise in the Ifo index could point to Germany helping to haul the eurozone out of recession later in the year.

Meanwhile, however, the commission said in its latest growth projections released in Brussels that the eurozone is only likely to return to growth next year with the economy expanding by a modest 1.4-percent.

Adding to the downbeat mood in the eurozone, the European Central Bank released new data on Friday showing that banks paid back less than half of what was expected of their ECB emergency loans.

The ECB said that 356 banks plan to repay loans of 61.1 billion euros (US$80.5 billion) by the end of the month.

Unlike large parts of the eurozone, unemployment in Germany is expected to tick down to 5.6 percent next year as growth picks up speed, the commission's projections show.

At the same time, the jobless rate in Italy is forecast to rise to 12 percent in 2014 and to remain above 26 percent in Spain — the currency bloc's third and fourth biggest economies.

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