Eurozone shows robust 1 percent growth in Q2

[August 13, 2010]  LONDON (AP) -- The economy of the 16 countries that use the euro expanded by a better-than-expected 1 percent during the second quarter as growth engine Germany expanded at its fastest pace since reunification two decades ago.

Thursday's figures show the eurozone grew at its fastest rate in nearly four years -- and faster than the U.S. during the same quarter.

That defied expectations from just a couple of months ago when Europe was threatened by a severe government debt crisis. The U.S. grew by 0.6 percent during the April to June period compared to the previous quarter.

The eurozone economy also beat market forecasts for a 0.7 percent rise and the muted 0.2 percent growth from the first quarter. Germany, Europe's biggest economy, led the way as its economy grew by 2.2 percent in the second quarter as exporters reaped the benefits of a recovery in global demand.

Still, many economists think the second quarter will be as good as it gets for the eurozone this year. Governments across the region -- particularly Greece, Spain, Ireland and Portugal -- are slashing spending programs and raising taxes to cut their ballooning debt levels, depriving the economy of stimulus from government spending. Additionaly, the U.S., a major trading partner, is losing momentum.

"The peripheral economies will continue to suffer from fiscal tightening and look set to remain in, or return to, recession," said Jennifer McKeown, senior European economist at Capital Economics.

"Meanwhile, the German recovery will weaken as global demand slows and its own fiscal consolidation begins next year," she added.

Figures across Europe show a wide divergence in performance and there are fears that a number of countries will remain in recession or will start contracting once again -- the eurozone as a whole only emerged from its severe recession in the third quarter of last year.

While Germany is steaming ahead, and France posted a solid 0.6 percent increase, others like Greece, remain mired in recession. The economy there contracted by 1.5 percent in the second quarter. And Spain's modest 0.2 percent improvement in the quarter won't do much to get the unemployment rate down from 20 percent.

Howard Wheeldon, senior strategist at BGC Partners, thinks that this gap between the core and the periphery may cause friction within the single currency area.

"The point is that if Germany is growing on the back of predominantly export led growth and that other eurozone economies are being left out in the cold is a fact that over time is almost bound to create increased friction amongst smaller eurozone members," said Wheeldon.

Compared to the same quarter a year ago, the figures from statistics agency Eurostat revealed that the eurozone economy grew by 1.7 percent, up from the 0.6 percent rate recorded in the first quarter.

The U.S. economy grew 2.4 percent at an annual rate in the second quarter, according to the U.S. Commerce Department, although that figure may be revised downward later. The EU does not publish quarterly figures that show the annualized rate of growth, as the U.S. does, but simply compares them to the previous quarter or the same quarter a year ago.

The wider 27-country EU, which includes non-euro members such as Britain and Sweden, also grew by a quarterly rate of 1 percent for an annual increase of 1.7 percent.

The Eurostat figures published Friday do not include all the economies of the EU. A number, such as Denmark, Poland, Romania and Finland, have still to pull together quarterly figures.

[Associated Press; By PAN PYLAS]

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