France and Germany exit recession

Consumer spending has risen in both France and Germany

The French and German economies both grew by 0.3% between April and June, bringing to an end year-long recessions in Europe's largest economies.

Stronger exports and consumer spending, as well as government stimulus packages, contributed to the growth.

The data came as a surprise, with few analysts expecting Germany and France to start to recover so soon.

But economic activity in the eurozone fell by 0.1%, showing the region as a whole is still in recession.

It was the fifth consecutive quarter of economic contraction in the eurozone, but was a marked improvement on the 2.5% drop recorded in the first three months of the year.

UK reaction

ANALYSIS Hugh Pym, Chief economics correspondent Germany and France can now say they are technically out of recession, while the UK is still in it. The UK government's claims that it is a global recession maybe rings a little less true in terms of the mood music from each country over the last couple of days. We've had the French finance minister hailing the figures as a sign of recovery and more optimistic noises from the US Federal Reserve. Yet at the same time the governor of the Bank of England has said the recovery in the UK will be slow and protracted. The key question now is whether, over the next year, the UK is going to be helped by Germany and France or held back by things like household debt and the state of our banking system.

Markets reacted positively to the news, with the main German and French markets up more than 1% at midday before later dropping back slightly.

In London, the FTSE 100 index also rose, with traders anticipating a positive effect on the UK economy, which by contrast shrank by 0.8% in the second quarter.

Asked about why the UK seemed to be lagging behind, Business Secretary Lord Mandelson said: "Different economies will show different patterns of behaviour."

"But the key point is all these economies rely on each other; 55 to 56% of our trade is with the rest of Europe. So when [they are] recovering that is good news for our manufacturers and our exports here."

France and Germany may have been less hard hit than the UK by the global economic slowdown because their financial sectors, which were at the heart of the crisis, account for a smaller proportion of their economies.

Export recovery

Germany was thrown into recession earlier in the year because its exports collapsed.

The latest figures showed German exports had grown at their fastest pace for nearly three years at 7%, with particularly strong growth in demand from rapidly-growing economies such as China.

The country's Federal Statistics Office said that household and government expenditure had also boosted growth.

It added that imports had declined "far more sharply than exports, which had a positive effect on GDP growth".

"These [GDP] figures should encourage us," said Germany's Economy Minister Karl-Theodor zu Guttenberg. "They show that the strongest decline in economic performance likely lies behind us."

Reaction among analysts to the signs of Germany's recovery, however, was mixed.

"The recession has ended, and it has ended sooner than we all thought. We expect to see growth of 1% in the third quarter, which is very strong for Germany, and I wouldn't rule out the chance of even better growth," said Andreas Rees at Unicredit.

But there are concerns that the banking system across Europe is still fragile and that the growth is reliant on government stimulus spending that will eventually have to come to an end.

BBC Europe business reporter Mark Sanders said that although the surprise news was highly welcome for those that have been suffering, there were questions about how strong and credible the economic recovery is.

"To draw a medical analogy, we've got the patient waking from a coma and talking to medical staff," he said. "They're not necessarily going to be running any marathons soon."

Consumer spending

In France, economy minister Christine Lagarde said: "The data is very surprising. After four negative quarters France is coming out of the red."

Ms Lagarde said that consumer spending and strong exports had helped to pull France out of recession.

CASE STUDY Plastics manufacturer Wirthwein Nauen, Germany Chief executive Ulf Sauerwald says his business is growing. Orders are rising and it is taking on more staff. "Turnover in the whole group increased from 15 to 20% at the start of the year. We've had major new orders coming in, have developed new products in the car sector and are planning to open a new factory in Spain," he says. But the workers on the factory floor are not seeing a recovery yet. "It is tough right now... we don't get paid overtime and don't buy expensive stuff like cars," says employee Christopher Schmidt.

"What we see is that consumption is holding up," she said.

Official figures showed that household consumption rose by 0.4% in the second quarter.

She said government incentive schemes for trading in old cars, together with falling prices, were helping consumers.

Foreign trade contributed 0.9% to the GDP figure - a "very strong impact", said Ms Lagarde.

"[The figures are] a positive surprise, as many people were expecting slightly negative numbers," said Marie Diron at Oxford Economics.

But she warned that growth was "still very fragile".

"Investment is down, we still have surprisingly low stock levels, and growth is boosted by the fact that imports fell sharply," she added.

Massive Israeli air raids on Gaza

Israeli F-16 bombers have pounded key targets across the Gaza Strip, killing more than 200 people, local medics say.

Most of those killed were policemen in the Hamas militant movement, which controls Gaza, but women and children also died, the Gaza officials said.

About 700 others were wounded, as missiles struck security compounds and militant bases, the officials said.

Israel said it was responding to an escalation in rocket attacks from Gaza and would bomb "as long as necessary".

They were the heaviest Israeli attacks on Gaza for decades. More air raids were launched as night fell.

The operation came days after a truce with Hamas expired.

Israeli Defence Minister Ehud Barak said "it won't be easy and it won't be short".

"There is a time for calm and a time for fighting, and now the time has come to fight," he said.

US Secretary of State Condoleezza Rice accused Hamas of having triggered the new bout of violence.

"The United States strongly condemns the repeated rocket and mortar attacks against Israel and holds Hamas responsible for breaking the ceasefire and for the renewal of violence in Gaza," she said.

"The ceasefire should be restored immediately. The United States calls on all concerned to address the urgent humanitarian needs of the innocent people of Gaza."

UN Secretary-General Ban Ki-moon also urged an immediate halt to the violence, condemning what he called Israel's "excessive use of force leading to the killing and injuring of civilians" and "the ongoing rocket attacks by Palestinian militants".

Calls for a ceasefire also came from Middle East envoy Tony Blair and the French EU presidency.

Palestinian militants frequently fire rockets against Israeli towns from inside the Gaza Strip; large numbers of rocket and mortar shells have been fired at Israel in recent days.

In a statement, Israel's military said it targeted "Hamas terror operatives" as well as training camps and weapons storage warehouses.

Hamas bases destroyed

A Hamas police spokesman, Islam Shahwan, said one of the raids targeted a police compound in Gaza City where a graduation ceremony for new personnel was taking place.

Hamas will continue the resistance until the last drop of blood Fawzi Barhoum Hamas spokesman

At least a dozen bodies of men in black uniforms were photographed at the Hamas police headquarters in Gaza City.

Israel said operations "will continue, will be expanded, and will deepen if necessary".

It is the worst attack in Gaza since 1967 in terms of the number of Palestinian casualties, a senior analyst told.

Israeli Foreign Minister Tzipi Livni defended the air raids, saying Israel had "no choice". "We're doing what we need to do to defend our citizens," she said in a television broadcast.

Israel hit targets across Gaza, striking in the territory's main population centres, including Gaza City in the north and the southern towns of Khan Younis and Rafah.

Hamas said all of its security compounds in Gaza were destroyed by the air strikes, which Israel said hit some 40 targets.

Mosques issued urgent appeals for people to donate blood and Hamas sources told that hospitals were soon full.

In the West Bank, Palestinian Authority President Mahmoud Abbas - whose Fatah faction was ousted from Gaza by Hamas in 2007 - condemned the attacks and called for restraint.

Civilians were caught up in the air strikes in heavily-populated Gaza

But Hamas quickly vowed to carry out revenge attacks on Israel in response to the air strikes, firing Qassam rockets into Israeli territory as an immediate reply.

One Israeli was killed by a rocket strike on the town of Netivot, 20 kilometres (12 miles) east of Gaza, doctors said.

"Hamas will continue the resistance until the last drop of blood," spokesman Fawzi Barhoum was reported as saying.

The air strikes come amid rumours that an Israeli ground operation is imminent.

Israeli television said on Saturday evening that Israeli troops were massing on the Gaza border "in preparation for a supplementary ground offensive". The report has not been confirmed by independent sources.

Israel's Haaretz newspaper reported that about 60 warplanes took part in the first wave of air strikes.

Most of the dead and injured were said to be in Gaza City, where Hamas's main security compound was destroyed. The head of Gaza's police forces, Tawfik Jaber, was reportedly among those killed.

Residents spoke of children heading to and from school at the time of the attacks.

Egypt opened its border crossing to the Gaza Strip at Rafah to absorb and treat some of those injured in the south of the territory.

Palestinians staged demonstrations in the West Bank cities of Ramallah and Hebron, and there were some scuffles with Israeli troops there.

Although a six-month truce between Hamas and Israel was agreed earlier this year, it was regularly under strain and was allowed to lapse when it expired this month.

Hamas blamed Israel for the end of the ceasefire, saying it had not respected its terms, including the lifting of the blockade under which little more than humanitarian aid has been allowed into Gaza.

Israel said it initially began a staged easing of the blockade, but this was halted when Hamas failed to fulfil what Israel says were agreed conditions, including ending all rocket fire and halting weapons smuggling.

Israel says the blockade - in place since Hamas took control of Gaza in June 2007 - is needed to isolate Hamas and stop it and other militants from firing rockets across the border at Israeli towns.