15 May, 2008

Germany leads European growth

Europe’s biggest economy, Germany, expanded at a stunning pace in the first three months of 2008 and strong French growth showed the wider region began the year far outperforming a near-stagnating U.S. economy. Many economists believe things have already started to slow and officials have acknowledged this, but official data on Thursday suggested mainland Europe’s large economies were in good shape when the global credit crisis hit, due primarily to business investment. The biggest surprise was Germany, where gross domestic product growth of 1.5 percent compared with the final three months of 2007 was twice the pace anticipated by economists, several of whom described the news as simply sensational. Corporate investment was the main reason for the five-fold rise in the quarter-on-quarter growth rate from 0.3 percent in the last three months of 2007, according to the statistics office, which did not provide a detailed breakdown in numbers. Once those figures were released it looked like a foregone conclusion that an estimate for the euro zone as a whole, due at 0900 GMT, would be stronger than economists’ predictions gathered earlier and centring on a 0.5 percent rise in first-quarter GDP ECON. The faster than expected expansion for the opening few months of the year in much of mainland Europe contrasted with next to no growth in a U.S. economy hit by a severe housing slump. First-quarter GDP estimates there show the economy grew 0.2 percent when the official figure is translated into a measure comparable with the estimates published in Europe. INFLATION HURTS France’s economic growth in the first three months of the year was a healthy 0.6 percent, compared with the preceding quarter, the statistics office there said. In France, like Germany, corporate investment was behind the overall rise, along with a better result from foreign trade. More worryingly, consumer demand, traditionally a stronger source of growth than for export-dependent Germany, stagnated in the quarter. Households across Europe have to contend with further rises in the cost of living as surges in worldwide commodity prices generate knock-on rises in the cost of fuel, food and many of the things people need to buy regularly. Together, Germany and France account for more than half of the total economic weight of the 15-country euro currency area. Among smaller economies reporting, Austrian gross domestic product rose 0.8 percent in the first quarter of 2008 compared with the quarter before due to booming industry and construction sectors, research institute WIFO said. TROUBLE COMING? Despite a German performance analysts described as “amazing” or “sensational”, officials in Europe have already acknowledged that the following quarters will show slower rates of activity, even if politicians insist it is a slowdown not a slump. Carsten Brzeski, an economist for Dutch finance group ING, said it was possible Germany economic growth would even hit standstill in the second quarter. “A Chinese proverb says that it is better to light a candle than to curse the darkness,” he said. “However, at the current juncture one should not be blinded by the German GDP numbers. Among economies more dependent on housing markets to spur consumer spending, the news is not so encouraging. In Spain, where growth had outstripped the euro zone average for a decade, data on Wednesday showed first quarter growth slid to 0.3 percent over the previous quarter — the weakest the country has seen since 1993, a recession year. There, as in Ireland, and Britain, housing booms have been perhaps the biggest reason for brisker growth rates than in much of mainland Western Europe in the past decade, but signs now are that the boom is well and truly over. British growth slowed in the first quarter to 0.4 percent from 0.6 percent in the last quarter of 2007 and central bank chief Mervyn King said on Wednesday the country should brace for continued house price falls, and possibly a quarter or two of economic contraction. The Netherlands too disappointed somewhat on Thursday by announcing a first-quarter GDP growth rate of 0.2 percent, though that may be explained in part as inevitable following a surge of German proportions in the final three months of 2007.

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