Europe’s two biggest economies – Germany and France – have come out of recession, seeing a mild GDP increase between the first and second quarter of this year, while the euro zone’s broader economic decline has markedly slowed down.

But following a marginal decline in the last quarter of 2008, the Maltese economy posted negative annual growth of 3.3 per cent in the first three months of this year, the Central Bank’s Quarterly Review reported last week. That means that for the second consecutive quarter, the Maltese economy saw negative growth, hence recession. Malta has yet to announce its second quarter figures.

Both the German and French economies grew by 0.3 per cent of GDP in the second quarter of this year according to flash estimates published by the EU’s statistical office, Eurostat, on Thursday.

Greece, Portugal and Slovakia also reported a quarterly rise.

Spain’s GDP shrank by 1 per cent in the second quarter of 2009, following a drop of 1.9 per cent in the first quarter. Madrid forecasts a contraction of 3.6 per cent this year, with growth in late 2010.

The UK too is still in recession, notwithstanding some rosy forecasts made earlier.

In contrast, Lithuania remained at the bottom of the bloc’s list and showed little sign of improvement. Its economy shrank by a further 12.3 per cent of GDP.

The second quarter EU figures also look less rosy when compared to the same period last year, instead of to first quarter 2009.

The German and French economies are down 5.9 per cent and 2.6 per cent respectively year-on-year. Latvia is down 22.6 per cent, Lithuania is at minus 18.2 per cent and Estonia is down 16.6 per cent.

In Malta’s case, reading about the recession makes for some horrific details. The main factors contributing to this contraction were exports and investment, although consumption also fell.

Having decelerated over the previous two quarters, private consumption decreased marginally in the quarter under review. In nominal terms, private consumption expanded, though at a slower pace than in recent quarters.

Higher spending on housing, water and energy and food and non-alcoholic beverages, was dampened by reduced expenditure on transport, entertainment and clothing. The overall sluggishness of domestic demand was also reflected in the performance of wholesale and retail trade, which registered a contraction of 8.3 per cent and a negative contribution to nominal GDP growth of 0.8 percentage points.

In short, it would seem that while Malta was somewhat late in entering the recession, it could now be equally late in coming out of it. The business sentiment surveys published by the Quarterly Review refer to the second quarter of the year, so in the absence of real data concerning the second quarter, they will have to suffice.

They show, though with some interesting divergences, that business sentiment in general rose a little in the second quarter, although it is still negative in general. Consumer confidence worsened between the first and second quarters, reaching its low in April and rising somewhat in the following two months.

In detail, the monthly surveys of Maltese manufacturing firms carried out by the European Commission during the second quarter of 2009 indicated that, after having reached a low during the first three months of the year, industrial confidence improved slightly, particularly during April and May. In fact, the confidence level added 3 percentage points over the quarter, reaching -26 in June. Nevertheless, at this level the indicator was still well below the level recorded in the second quarter of 2008.

The slight improvement in confidence in April and May was fuelled by higher production expectations and a rundown in stocks of finished goods, while the deterioration in June was mainly attributable to lower order book levels.

Non-seasonally adjusted data show that firms in the construction industry also reported a pick-up in confidence over the quarter, mostly on account of improved sentiment in May. This was reflected in an anticipated increase in their labour complement over the subsequent three months, although order book levels were substantially down on the same period a year ago. Operators in the industry pointed to weak demand and financial constraints as the main factors limiting construction activity.

On the other hand, confidence levels in the services sector showed continued improvement, reversing further the deterioration observed in 2008. The surge in the non-seasonally-adjusted indicator from -20 in March to -9 in June reflected optimism with regard to the business situation. Among the other two components of the indicator there was an improvement in demand in the previous three months, while expectations regarding demand in the subsequent three months remained largely unchanged.

The survey showed that the main constraints to business activity for firms in the services sector were a tighter cash flow and, to a lesser extent, insufficient demand.

Consumer sentiment worsened on balance between the first and second quarters of the year, though the index, after reaching a record low of -38 in April, rose in the following two months. Thus, survey replies in April indicated heightened concerns about the general economic situation, the respondents’ financial situation and, above all, the ability to save over the next year, though there was a marginal improvement in expected labour market developments.

Brussels has kept up calls for member states to return to healthy public finances as soon as possible after their economies kick in.

For some countries, reducing state costs also comes as a condition linked to international obligations. The Romanian government announced 10,000 job cuts in the public sector on Thursday, as part of austerity measures required by the IMF and EU lenders.

Bucharest also has plans to give all state employees 10 days of unpaid leave in the coming three months, according to Romanian media reports.

Poland appears likely to be one of the few European countries to avoid a recession this year, but the government has been affected by falling tax revenues and is scrambling to find ways to bridge the widening deficit.

The European Commission expects Poland’s general government deficit to reach 6.6 per cent of gross domestic product this year and increase to 7.3 per cent in 2010. Government debt was 47 per cent of GDP last year. The finance ministry says the debt could top 50 per cent this year and 55 per cent next year.

That puts pressure on the government, because Polish law sets triggers for action if the debt becomes too large. If it breaches 55 per cent of GDP, the government must present a budget for the following year that will result in a lower debt than that of the current year. If the debt exceeds 60 per cent, it must present a balanced budget the next year.

The government is running out of options to find the extra funds. It pressed state-controlled companies and the national bank to pay out as much of last year’s profits as possible in dividends to help with the deficit. But in 2010 there will be hardly any such surplus because of this year’s downturn. President Lech Kaczynski has said he would veto any tax rises.

That has forced the government to accelerate its privatisation programme. The plan calls for sales of state assets to bring in 36.7bn zlotys (e8.8bn) by the end of next year. Some money will come from sales of small shareholdings in companies sold off years ago.

But to reach his targets, Aleksander Grad, the Treasury minister, will have to sell off stakes in companies still under state control. The government would sell 10 per cent of KGHM, the copper mining company in which the Treasury has a 42 per cent stake, as well as shares in PGE and Tauron, the electricity generators, and Lotos, the oil company.