Germany ekes out growth, France slides into recession

BERLIN / PARIS - Reuters

The eurozone economy has shrunk 0.2 percent in the January to March period, the EU’s statistics office, Eurostat, said yesterday. While Germany has grown only by 0.1 percent, France has contracted by 0.2 percent and Italy by 0.5 percent. REUTERS photo

Germany’s economy crept back into growth at the start of the year but not by enough to stop the eurozone from contracting for a sixth straight quarter, and France slid into recession.

Italy, the eurozone’s third largest economy, also reported its seventh consecutive quarter of decline, the EU’s statistics office Eurostat said yesterday.

The eurozone shrank 0.2 percent in the January to March period, worse than the 0.1 percent contraction forecast by a Reuters poll.

Germany grew by a weaker than expected 0.1 percent on the quarter, just skirting recession itself as a harsh winter prevented a stronger rebound and also hampered by the ills of its eurozone peers. “The German economy is only slowly picking up steam,” the Statistics Office said in a statement. “The extreme winter weather played a role in this weak growth.”

France entered a shallow downturn - its first in four years - after contracting by 0.2 percent in the first three months of the year, as it did in the last quarter of 2012.

The euro fell to a six-week low against a buoyant dollar, hurt by the anaemic figures which traders said kept alive chances of more monetary easing by the European Central Bank.

The ECB cut rates to a record low earlier this month and its head, Mario Draghi, said it was ready to act again if the economy worsened.

For Italy, the eurozone’s third biggest economy, the situation is far worse. It shrank by more than expected in the first quarter, by 0.5 percent, extending the country’s recession to seven straight quarters and making it the longest since quarterly records began in 1970.

Dutch post 0.1 pct decrease in GDP

Elsewhere in the currency area, the Dutch reported a 0.1 percent contraction in GDP, remaining in recession, Austria’s economy flatlined in the first quarter and Finland shrank by 0.1 percent, entering a technical recession in the process.

The eurozone’s problems also stretched beyond its borders, helping drag the Czech Republic’s economy into a far deeper recession than expected.

The difference between Europe’s two largest economies, Germany and France, looks narrow over the first three months of the year but European diplomats and officials fear France will continue to lag far behind, threatening the cohesion of the twin policy motor that has traditionally driven the European project.

“Looking ahead, prospects for the German economy are further clearing up,” ING economist Carsten Brzeski said. “Industry is gaining pace as order books have started to fill again and companies are cautiously stepping up their investment plans. Moreover, domestic demand with the solid labour market and wage increases have become a reliable growth driver.”

The figure for the whole euro zone is forecast to show the currency bloc’s economy subsided by 0.1 percent in the first quarter, leaving it in recession.

Even Germany will find it difficult to reach take-off speed alone. Its statistics office revised down its figure for the end of 2012 to show a contraction of 0.7 percent, from 0.6 percent.

Thomas Gitzel at VP Bank expected a stronger performance in the second quarter as construction activity, hit by the extreme winter, bounces back.

But he added: “The current global economic backdrop makes a sustained recovery more unlikely.

Difficulties in France and disappointing growth figures from China are strewing stones in the path of the Germany economy. Hopes of significantly higher growth could be premature.” The latest GDP figures will add fuel to a burgeoning debate about how to balance the need to cut debt with measures to foster growth. Italian and French leaders have been vocal in calling for an end to austerity and European Commission President Jose Manuel Barroso has said it has reached the limits of public acceptance.