Eurozone GDP grows by 1pc

City A.M. Reporter
EUROZONE gross domestic product (GDP) grew at its fastest pace in more than three years in the second quarter, boosted by a strong performance by Germany and France, but concerns remain that the rebound could falter.

European Union statistics agency Eurostat said GDP in the 16-nation currency zone expanded by one per cent in the second quarter from the first, and by 1.7 per cent versus the second quarter of 2009, matching a revised Reuters poll.

Economists said the figures were the strongest in at least 3-1/2 years and showed euro zone growth outpacing that of the United States in the March-June period.

A revised Reuters poll of economists taken on Friday, after strong national figures from Germany and France were released, forecast the growth to come in as it did at 1.0 percent quarter-on-quarter and 1.7 per cent year-on-year.

Germany proved the engine of the euro zone growth figures, with data released earlier on Friday showing the German economy expanded by 2.2 percent in the second quarter, the fastest rate since German reunification, with companies stepping up investment and exports surging.

France also recorded strong growth of 0.6 percent quarter-on-quarter. The main drag on the euro zone was Greece, where GDP contracted 1.5 percent in the period.

While the euro zone's second quarter figures were encouraging, and the European Central Bank has said that signs are encouraging for growth in the current quarter, the longer term prospects are dimmed by stalling growth in the United States and China, the world's two largest economies.

Business and consumer confidence surveys in the euro zone have been encouraging in recent weeks and inflation remains in check, but there is scarce evidence of that confidence filtering through to domestic consumption, which will be the long-term driver in any sustained pick up in the economic growth.

With unemployment in the euro zone hovering at a 12-year high of ten per cent and most governments looking to impose ever tighter austerity measures to get their finances back in check, the prospects for an increase in consumer spending are slight.

Exports may be helped by a slightly weaker euro against the dollar, but that will not be enough to keep the region buoyant.

"The recovery still looks worryingly lop-sided," said Jennifer McKeown, senior economist at Capital Economics, speaking after German data were released.

"In all, then, while the surveys suggest that the euro-zone's strong performance might continue into the third quarter, it seems unlikely to last much beyond that."