Germany saves euro zone from recession, split deepens

Tue May 15, 2012 7:42am EDT
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By Robin Emmott and Alexandra Hudson

BRUSSELS/BERLIN (Reuters) - Germany pulled the euro zone's economy back from the brink of recession at the start of 2012 but stagnation in France and contraction in southern Europe underlined sharply differing fortunes in a bloc laboring under the effects of austerity.

Overall gross domestic product was unchanged in the first quarter following a dip at the end of last year, data showed on Tuesday, meaning that the euro zone missed slipping officially into recession by the narrowest possible margin.

But a surprisingly strong showing from Germany, whose exporters are helping it to cope with the euro zone crisis, flattered dismal performances in most of the other major economies.

"Germany is leading the bloc, but this doesn't mean we will have a strong rebound. Austerity is not going away and southern European economies are really struggling," said Mads Koefoed, a senior economist at Saxo Bank. "We are looking at stagnation to very mild growth in the year to come."

Most euro zone governments are imposing austerity policies, often at great cost to their electorates and the chances of economic growth, hoping to counter the debt crisis by cutting their budget deficits. However, new French President Francois Hollande is heading to Berlin on Tuesday to argue for adding measures to boost growth to the formula.

Tuesday's data showed a two-speed euro zone, with Italy's recession deeper than feared and Greece suffering something akin to a depression.

"There's a growing divergence in the euro zone, with particularly sharp contractions in the peripheral countries that need to do the most structural reforms, while Germany is the outperformer," said Joost Beaumont at ABN Amro in Amsterdam.

GDP in Germany, Europe's biggest economy, rose 0.5 percent on the quarter, confounding expectations of a more modest rise and lifting the rest of the 17-nation currency bloc.   Continued...

A man walks past a closed store with a sign reading "Total clearance closure" in downtown Madrid April 19, 2012. REUTERS/Andrea Comas