German and French GDP growth lower than expected

City A.M. Reporter
The French and German economies expanded by less than expected in the fourth quarter, data showed on Tuesday, suggesting the euro zone may not have accelerated out of a third-quarter slowdown.

Economists have forecast that the euro zone economy as a whole grew by 0.4 per cent in the final three months of 2010, after 0.3 per cent in the third quarter and 1.0 per cent in the second.

The French and German economies make up almost 50 per cent of the single currency bloc.

German gross domestic product increased by 0.4 per cent, against expectations of a 0.5 per cent rise and a deceleration from the 0.7 per cent growth registered in the third quarter.

In France, the expansion was 0.3 per cent, half the expected increase, and the same level as in the July-September period. Economists had been expecting growth in the euro zone's second largest economy to return to the 0.6 per cent in the second quarter.

French Economy Minister Christine Lagarde said she hoped for stronger growth in the first quarter and maintained the government's forecast for expansion this year of two per cent.

Snow and icy weather may have played a role. Construction in particular was hit hard and can be expected to rebound.

"This won't last, it's not the end of the recovery. The winter weather slowed things down and we should see a higher rate of growth in the first quarter," Commerzbank economist Christoph Weil said, referring to the German economy.

Growth in the third quarter tempered after a very strong April-June period – when the German economy powered ahead by 2.2 per cent quarter-on-quarter.

French analysts were less upbeat about their economy despite Lagarde's upbeat prognosis.

"This fairly mediocre figure confirms France is on a path of sluggish growth," said Alexander Law, chief economist at Xerfi

"At the end of the day, if we take out technical and one-off elements, France is on an annualised growth rhythm of 1.2 per cent."