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Forecast-busting economic growth in Germany and a surprise rebound in Greece helped the 17-nation eurozone start …

Germany powers eurozone economic surge in Q1
May 13, 2011, 8:56 a.m. EDT
Associated Press

Journal By Calvin Lee Ledsome Sr.,

Owner and Founder of: http://www.LedSomeBioMetrics.com

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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 U.S. 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 U.S. 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, which has to look at the whole eurozone as it seeks to tame inflation, 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.

Unsurprisingly, given its sheer size, Germany was the main reason the eurozone grew so fast. Its 1.5 percent growth during the quarter 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 1 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.

The European Commission, the EU’s executive, on Friday raised its debt forecasts for all three of them.

That will likely spice up discussions among eurozone governments on whether Greece will need a second bailout.

It will also fuel calls from many economists who say Greece needs to restructure its debts — to delay or lower its bond repayments.

Eurozone ministers will start discussing how to help Greece at a meeting on Monday.

The Commission said it expects the eurozone economy to grow 1.6 percent in 2011, while the wider 27-country EU, which includes non-euro members like Britain and Poland, is anticipated to grow by 1.8 percent for the second year running.

Germany is expected to grow 2.6 percent this year but Greece is anticipated to shrink another 3.5 percent.

Olli Rehn, the commissioner in charge of monetary and economic affairs, said the EU will surpass the pre-crisis (pre-2008) 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 U.S. 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 series of figures helped the euro, which had lost about 8 cents to the dollar this week as investors scaled back expectations of interest rate increases in Europe and worried about Greece’s debt troubles.

By mid afternoon London time, the euro was up 0.2 percent at $1.4262, having traded as high as $1.4338 earlier. Last week, it was near 18-month highs above $1.49.

“The solid growth performance of the EU’s core economies puts the European Central Bank in an increasingly uncomfortable situation,” said Tim Ohlenburg, senior economist at the Centre for Economic and Business Research.

“Higher interest rates would make sense for the large, central eurozone countries in which unemployment has fallen and output is making a comeback, but this would further undermine weaker economies faced with high debt levels and fragile banking sectors,” Ohlenburg added.


Gabriele Steinhauser in Brussels, Geir Moulson in Berlin and Nicholas Paphitis in Athens contributed to this story.


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