Germany powers eurozone economic surge

LONDON (AP) – Forecast-busting economic growth in Germany and a surprise rebound in Greece helped the 17-nation eurozone start the new year with a bang, with the region growing twice as fast as the US despite constant fears about debt.

The eurozone’s economy expanded by a quarterly rate of 0.8 percent in the first three months of the year, according to Eurostat, the EU’s statistics office on Friday.

That was more than double the 0.3-percent growth posted in the previous three-month period, ahead of analysts’ expectations for a 0.6 percent increase and twice US growth.

“The eurozone is therefore significantly outperforming all other major developed economies at the moment,” said Chris Williamson, chief economist at Markit.

The figures have cemented expectations that the European Central Bank will follow up April’s interest rate increase — the first in nearly three years — with another, possibly in July, despite some countries’ debt troubles.

In year-on-year terms, the eurozone economy grew 2.5 percent, roughly in line with what many say should be its long-term average.

Olli Rehn, the European commissioner in charge of monetary and economic affairs, said the EU will surpass the pre-financial crisis growth levels next year.

That’s far sooner than most predicted in 2008, when the global economy sank into its deepest and longest recession after the collapse of US investment bank Lehman Brothers brought the financial system to its knees.

“The main message in our forecast is that the economic recovery in Europe is solid and continues, despite recent external turbulence and tensions in the sovereign debt market,” Rehn said.

The Commission’s new forecasts are for the eurozone to grow 1.6 percent this year and the wider 27-nation EU, which includes non-euro members such as Britain, by 1.8 percent.

Unsurprisingly, given its sheer size, Germany was the main reason the eurozone grew so fast in the first quarter. Its 1.5 percent growth means the EU’s largest economy has now made up all the output lost during the recession. It was driven by a healthy balance of exports and household spending.

“Germany is the engine of growth among industrial countries — and not just in Europe,” German Economy Minister Philipp Roesler said.

France’s economy, the eurozone’s second-biggest, expanded by a robust one percent on higher consumer spending and business investment. Northern economies like the Netherlands grew strongly, while Italy and Spain lagged behind.

Perhaps more surprisingly, given the debt quagmire it is in, Greece posted solid growth of 0.8 percent, its first economic expansion since the fourth quarter of 2009. However, the increase is unlikely a sign of a sustained rebound as the previous quarter’s contraction was doubled to a colossal 2.8 percent.

Manos Chatzidakis, head of investment strategy at Pegasus Securities, said the Greek figures were disappointing because of the revision.

“The economy still has a considerable way to go before recovery,” said Chatzidakis. “We remain in a very unfavorable situation.”

Portugal, another bailout recipient, returned to recession. Its 0.7 percent quarterly decline follows the 0.6 percent drop recorded in the previous three-month period — a recession is classified as two consecutive quarters of negative growth. Portugal is the third eurozone country to agree to a bailout, following Greece and Ireland.

Those countries’ problems are likely to be protracted as they struggle to reduce their mountains of debt. It’s those problems, particularly those confronting Greece, that continue to dominate sentiment towards the euro.