growth puts stagnant France and Italy in shade
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[May 15, 2014]
By Annika Breidthardt and Ingrid
— Germany posted strong
growth in the first quarter of the year in stark contrast with
France: the euro zone's second largest economy failed to expand at
all and Italy, the third largest, went into reverse.
German quarterly growth of 0.8 percent marginally exceeded forecasts
and was double the pace at the end of 2013. France was expected to
pale in comparison but had still been forecast to grow by 0.2
Inventory changes and public spending were the only factors which
kept the French economy from contracting while Germany's performance
was driven largely by domestic demand.
The figure for the euro zone as a whole is due at 0900 GMT and
forecast to show growth of 0.4 percent on the quarter.
France will now need 0.5 percent growth each quarter to meet a
government forecast for subdued 1 percent growth in 2014, Natixis
Asset Management chief economist Philippe Waechter said.
"France's public finance plan has been built on the 1 percent growth
forecast. If we don't achieve it France will not meet its (debt and
deficit) targets for 2014 and 2015," Waechter said.
France is not the only euro zone member in the doldrums.
Italian gross domestic product contracted unexpectedly by 0.1
percent, denting a fragile recovery begun at the end of last year
when the country finally put an end to its longest recession since
World War Two. Growth of 0.2 percent had been forecast.
The Dutch economy shrank sharply - by 1.4 percent quarter-on-quarter
- and Finland fell back into recession as output fell 0.4 percent
from the previous quarter, following a decline of 0.3 percent in the
fourth quarter of 2013.
There were no such problems for Germany.
Berlin expects domestic demand to drive growth of 1.8 percent this
year and German Finance Minister Wolfgang Schaeuble said after the
data that everything pointed to a broad economic pickup.
"Positive impulses came ... exclusively from within the country,"
the German Statistics Office said in a statement. "By contrast,
foreign trade put the brakes on economic growth."
To compound France's problems a public sector strike has been called
by the hardline FO labor union over civil service pay freezes - a
reminder of the difficulties of enacting economic reform.
The silver lining is the absence of pressure from the markets with
borrowing costs for many euro zone countries at record lows. France
will auction up to 9.5 billion euros of bonds later.
DON'T BLAME THE EURO
With recovery from years of economic crisis slow to materialize and
prices barely rising - euro zone inflation was just 0.7 percent in
April - the European Central Bank appears to be preparing to loosen
policy at its June meeting.
A number of sources told Reuters that the ECB was working on a
package of options, including cuts in all its interest rates and
targeted measures aimed at boosting lending to small- and mid-sized
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"We have ... stressed that we are determined to act swiftly if
required and do not rule out further monetary policy easing," ECB
Vice President Vitor Constancio said on Thursday.
The ECB has flagged a strong euro as one of its concerns, given the
downward pressure it puts on import prices and exports.
French President Francois Hollande's government wants euro zone
governments to take action on the currency and has called for
negotiations to weaken it after EU parliament elections next week.
The head of France's Medef national employers association said on
Tuesday that Paris should not use its call for a weaker euro as a
substitute for much-needed reforms.
Other euro zone countries which have taken strong medicine to
improve competitiveness are starting to see the benefits.
Spain reported first quarter GDP growth of 0.4 percent two weeks
ago, giving a year-on-year expansion of 0.6 percent, the strongest
in three years. In response, the Spanish government upped its 2014
growth forecast to 1.2 percent from a previous 0.7.
In global terms, much depends on China but there are positive signs
Japan clocked its fastest pace of growth in more than two years in
the first quarter, raising hopes the economy will have enough
momentum to tide over an expected slump following an April 1 sales
And the United States is expected to bounce back from a
weather-ravaged start to the year.
Hollande's government hopes to revive companies' competitiveness
with plans to phase out 30 billion euros ($41 billion) in payroll
tax over the next three years in exchange for commitments to boost
hiring and investment. ($1 = 0.7294 Euros)
(Additional reporting by James Mackenzie in Rome, Madeline Chambers
in Berlin, Jussi Rosendahl in Helsinki and Anthony Deutsch in
Amsterdam. Writing by Mike Peacock, editing by Toby Chopra)
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