German economy powers on, French growth evaporates

Tue May 15, 2012 4:43am EDT
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By Alexandra Hudson and Daniel Flynn

BERLIN/PARIS (Reuters) - Germany's economy confounded expectations by posting robust growth in the first quarter of the year while France could summon up none at all and Italy slid further into recession, data showed on Tuesday.

Gross domestic product in Germany, Europe's biggest economy, rose by 0.5 percent on the quarter, bouncing back from a 0.2 percent slide in the last three months of 2011. France's economy stagnated, although it grew slightly at the end of last year.

"This is a very strong comeback. The decline in the fourth quarter was not the start of a recession but just an economic dip," Joerg Kraemer, economist at Commerzbank, said of the German figures.

"Germany is faring better than the rest of the euro zone. But I do not believe that it will continue at this speed."

The yawning gap between Europe's largest economy and its peers will fuel an austerity versus growth debate in the currency bloc as it teeters on the edge of a new crisis, again centered on Greece.

The figure for the euro zone as whole, due at 05:00 a.m. EDT (0900 GMT), is forecast to show it shrank by 0.2 percent, following a 0.3 percent contraction in the last three months of 2011 - putting it back into recession.

Germany's strong showing could just allow the currency bloc to skirt recession and it certainly bolstered markets which were battered on Monday by growing fears that Greece will plunge Europe back into crisis by leaving the euro zone.

The FTSEurofirst of top European shares climbed 0.5 percent in response, safe haven German government bond futures dipped and the euro recovered some poise.   Continued...

A worker assembles the new Porsche 911 sports car at the Porsche factory in Stuttgart-Zuffenhausen January 24, 2012. REUTERS/Michael Dalder