Germany ekes out growth, France slides into recession

Berlin/Paris — Germany's economy crept back into growth in the first quarter of the year after a sharp contraction at the end of 2012, while France slipped into recession, data showed on Wednesday. Italy, the euro zone's third largest economy, reported its seventh consecutive quarter of decline. Germany grew by a weaker than expected 0.1 percent on the quarter, just skirting recession itself as a harsh winter prevented a stronger rebound and also hampered by the ills of its euro zone peers. "The German economy is only slowly picking up steam," the Statistics Office said in a statement. "The extreme winter weather played a role in this weak growth. France entered a shallow downturn—its first in four years—after contracting by 0.2 percent in the first three months of the year, as it did in the last quarter of 2012. The euro fell to a six-week low against a buoyant dollar, hurt by the anemic figures which traders said kept alive chances of more monetary easing by the European Central Bank. The ECB cut rates to a record low earlier this month and its head, Mario Draghi, said it was ready to act again if the economy worsened. For Italy, the euro zone's third biggest economy, the situation is far worse. It shrank by more than expected in the first quarter, by 0.5 percent, extending the country's recession to seven straight quarters and making it the longest since quarterly records began in 1970. Elsewhere in the currency area, the Dutch reported a 0.1 percent contraction in GDP, remaining in recession, Austria's economy flatlined in the first quarter and Finland shrank by 0.1 percent, entering a technical recession in the process. The euro zone's problems also stretched beyond its borders, helping drag the Czech Republic's economy into a far deeper recession than expected. Slow go The difference between Europe's two largest economies, Germany and France, looks narrow over the first three months of the year but European diplomats and officials fear France will continue to lag far behind, threatening the cohesion of the twin policy motor that has traditionally driven the European project. "Looking ahead, prospects for the German economy are further clearing up," ING economist Carsten Brzeski said. "Industry is gaining pace as order books have started to fill again and companies are cautiously stepping up their investment plans. Moreover, domestic demand with the solid labor market and wage increases have become a reliable growth driver." The figure for the whole euro zone, due at 0900 GMT, is forecast to show the currency bloc's economy subsided by 0.1 percent in the first quarter, leaving it in recession. A Reuters poll of 65 economists showed growth should return in the second half of this year and the euro zone may even scrape some in the second quarter, but there will no strong recovery until at least 2015. Even Germany will find it difficult to reach take-off speed alone. Its statistics office revised down its figure for the end of 2012 to show a contraction of 0.7 percent, from 0.6 percent. Thomas Gitzel at VP Bank expected a stronger performance in the second quarter as construction activity, hit by the extreme winter, bounces back. But he added: "The current global economic backdrop makes a sustained recovery more unlikely. Difficulties in France and disappointing growth figures from China are strewing stones in the path of the Germany economy. Hopes of significantly higher growth could be premature." The latest GDP figures will add fuel to a burgeoning debate about how to balance the need to cut debt with measures to foster growth. Italian and French leaders have been vocal in calling for an end to austerity and European Commission President Jose Manuel Barroso has said it has reached the limits of public acceptance. France, Spain and others have been granted longer to meet their deficit targets because of the worsening economic outlook. French growth has faltered as raging unemployment undermines the confidence of both consumers and businesses, which are struggling to cope with government belt-tightening while Spain remains deep in the mire. Data out last month showed Spain's economy shrank for a seventh consecutive quarter in the first three months of the year, falling by 0.5 percent. The government has acknowledged that 2013 will be worse than it had previously expected with the economy expected to contract by 1.3 percent. Germany sees austerity as necessary to bring down bloated debts after a decade of credit-fueled spending across much of Europe, even if many economists say it has deepened the euro zone's recession. — Reuters