Firms are feeling more positive

New figures show that Germany's economy expanded 0.2% in the three months to September, after slipping the same amount in the previous quarter.

France managed 0.2-0.3% growth in the same period, meaning it escaped the traditional definition of recession as two straight quarters of contraction.

Germany, in contrast, had been shrinking throughout the year to date.

In another sign of European recovery, Thursday also brought news that the Netherlands grew 0.1% in the third quarter, bringing the country out of a nine-month recession.

Back on track?

Germany's nascent recovery was the product of a growing trade surplus on the back of a resurgent US economy, the German Federal Statistics Office said, and came despite flagging domestic demand.

The end of the recession there comes as little surprise, following a string of reports indicating expectations of recovery.

Late last month, the well-respected Ifo index showed German business confidence rising well ahead of expectations and marking its sixth monthly improvement in succession.

Still, recent performance has injected a note of caution.

The problems in Germany and France have hampered the 12-nation eurozone as a whole, since - together with Italy - the two contribute 70% of the zone's output.

Reform

The federal government in Berlin is hoping its shake-up of welfare and taxation will help cement the return to growth.

Chancellor Gerhard Schroeder has staked his career on winning a parliamentary vote in October on the controversial measures, which included cuts in unemployment benefit.

He won a vote in the lower house, but still has to steer the bill through other parliamentary stages.