Germany's growth pulls eurozone back from brink of second recession
GERMANY pulled the eurozone'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 labouring under the effects of austerity.
Overall gross domestic product in the eurozone was unchanged in the first quarter following a dip at the end of last year, data showed yesterday, meaning that the eurozone avoided 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 eurozone crisis, flattered dismal performances in most of the 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.
Most eurozone governments are imposing austerity policies, often at great cost to their chances of economic growth, hoping to counter the debt crisis by cutting their budget deficits. Yesterday's data showed a two-speed eurozone, with Italy's recession deeper than feared and Greece suffering something akin to a depression.
"There's a growing divergence in the eurozone, with particularly sharp contractions in the peripheral countries that need the most structural reforms," said Joost Beaumont at ABN Amro in Amsterdam.
GDP in Germany, Europe's biggest economy, rose 0.5pc on the quarter, confounding expectations of a more modest rise and lifting the rest of the 17-nation currency bloc.
While the eurozone's stagnation offered little cheer, it was still better than the expected 0.2pc contraction. Two successive quarters of falling GDP would have marked the second recession since 2009. Ireland is in recession after the economy contracted in the final two quarters of last year. The Central Statistics Office has not yet published figures for 2012.
Germany's strong showing initially bolstered markets which had suffered a battering on Monday amid growing fears that Greece would leave the eurozone.
But even in Germany, the crisis is holding back a true revival, and analyst and investor sentiment fell sharply in May, separate figures showed. That ended a run of strong data for the economy as political uncertainty took its toll on confidence.
"The eurozone crisis has returned to investors' attention with the banking troubles in Spain and political instability in Greece," said Christian Schulz at Berenberg Bank.
France reported no expansion in the first quarter, unwelcome news for President Francois Hollande as he was inaugurated in the Elysee Palace in Paris yesterday.
"There was no good surprise," said Philippe Waechter, chief economist at Natixis Asset Management of the French data.
Italy's heavily indebted economy shrank more than expected in the first quarter, with GDP falling 0.8pc -- the third consecutive quarter contraction.
Even in the wealthy Netherlands, economic output contracted for a third consecutive quarter, shrinking 0.2pc in the first quarter of 2012 compared with the previous three months.
Greek GDP contracted 6.2pc year-on-year in the first quarter of 2012. (Reuters)