German economic growth accelerated more than economists forecast last quarter, providing fuel to help the euro area’s recovery offset an unexpected stalling in France.
GDP in the region’s biggest economy rose 0.8 percent, twice the pace of the previous quarter, but France, the euro area’s second-largest economy, unexpectedly stagnated in the period.
Germany is key to the 18-nation currency bloc’s drive to sustain a recovery from its longest-ever recession at a time when weak price growth is pushing the European Central Bank (ECB) toward adding more stimulus.
“Apparently, the divergence between the French and German economies is widening,” said Alexander Koch, an economist at Raiffeisen Schweiz in Zurich. “While the preconditions for solid expansion are better in Germany than in other countries, slowing fiscal consolidation and an improving labor market point to an increasing convergence and broadening in eurozone growth.”
Growth in Germany was driven by domestic consumption by private households and the government, the Federal Statistics Office in Wiesbaden said yesterday. Investment in construction and machinery also increased. External trade subtracted from growth with lower exports and higher imports than the prior quarter, the office said.
In France, the unchanged GDP tally compared with a revised 0.2 percent gain in the previous three months. The standstill shows the difficulty faced by French President Francois Hollande as he simultaneously seeks to overhaul the economy, revive growth and cut joblessness.
Spending by households and investment by business is being hurt by deficit-cutting and tax increases of more than 70 billion euros (US$96 billion) since 2011.
In the first quarter, consumer spending fell 0.5 percent, Insee said. Investment spending fell 0.9 percent, the third straight quarterly decline.
French Finance Minister Michel Sapin yesterday said he is maintaining the government’s forecast for 1 percent growth for this year.
“We need to accelerate and deepen growth,” he said on Europe 1 radio. “The recovery began slightly at the end of last year. It’s still not enough.”
The risks to growth come against the backdrop of a eurozone economy that is struggling to boost inflation, hurting efforts to reduce debt ratios and undermining the incentive of companies to invest.
Inflation in the currency bloc was 0.7 percent last month, and has been stuck at less than half the ECB’s goal of just below 2 percent since October last year.
Italy’s economy shrank 0.1 percent in the first quarter and was down 0.5 percent from the same period last year, according to an initial official estimate from the Istat data agency released yesterday.
The result will be disappointing for Italian Prime Minister Matteo Renzi’s government as the country’s worst recession since World War II had formally ended in the fourth quarter with growth of 0.1 percent.
The Milan stock market, which had been in positive territory at the start of trading, was down 0.58 percent yesterday after the announcement as analysts had been expecting a slow economic recovery to continue.
“This is a very weak result unfortunately,” said Chiara Corsa, a macroeconomy expert at Italy’s UniCredit bank.
“It’s due to weakness in the industrial sector. We had expected a positive contribution from exports and domestic demand,” she said, adding: “Growth has stopped — even worse it’s going backwards.”
The government has forecast economic growth of 0.8 percent this year but the IMF and the European Commission both see the eurozone’s third-biggest economy growing by just 0.6 percent.
Italy’s economy contracted by 1.9 percent last year.
Additional reporting by AFP
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