Saturday, August 14, 2010

Strong German Growth Lifts European Output

The euro area economy grew 1 percent in the second quarter of this year, a much better rate than had been expected, as Germany’s best quarterly performance since reunification compensated for slow growth in Spain and Italy and a sharp decline in Greece, according to data released Friday.

The rise in gross domestic product in the 16-country area that uses the euro currency was the fastest in four years, Eurostat, the European Union’s statistics office, reported. It compared with a 0.2 percent rise in the first quarter.

Economists cautioned that Europe would not maintain that rate of growth all year. And the figures also highlighted the sharp divergence in growth rates between Germany and the South European countries that are at the heart of the Continent’s sovereign debt crisis.

“The 2.2 percent surge in Germany sits uncomfortably alongside a 1.5 percent contraction in Greece, which remains firmly in recession, and only modest growth of 0.2 percent in Spain and 0.4 percent in Italy,” Chris Williamson, chief economist at Markit, a data provider, wrote in a note.

Still, the surprisingly strong growth raised hopes that Germany’s success might spill over to the rest of Europe.

“At a time when many are concerned about the vigor of the U.S. recovery, it is worth remarking on how strong and self-sustaining the German recovery is starting to look,” economists at Credit Suisse wrote in a report Friday. German consumer spending and imports should rise, the bank said, which “would be positive for the rest of the euro area, including the troubled periphery countries.”

Analysts had expected the euro area as a whole to grow less than 1 percent in the second quarter from the previous quarter, with some predicting growth close to zero. Germany, which is in the midst of an export boom, grew 2.2 percent compared with the first quarter, the biggest quarterly jump since East and West Germany reunited two decades ago. A Reuters poll of 34 economists had forecast 1.3 percent growth.

After the release of the data, there were signs of investors shifting out of riskier assets amid fears that divergent growth rates in the region might hamper a recovery further out.

The yields investors demanded for holding benchmark Spanish, Greek, Italian and Irish bonds all rose, while they declined for the German equivalents.

European stocks eased, led by banks, amid similar fears. The Euro Stoxx 50 index fell 0.4 percent. The euro ended Friday at $1.2755. It had traded above $1.32 when the week began.

Trade figures released separately Friday by Eurostat illustrated even more starkly the divergence between Northern and Southern Europe. Germany’s trade surplus was 60.2 billion euros, or $76.9 billion, from January through May, dwarfing the rest of Europe.

“Thanks to its high international competitiveness, the German economy is benefiting more than most from the sharp rebound in world trade,” Rolf Schneider, an economist at the German insurer Allianz, wrote in a note.

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