Euro Growth Diverges; Strong Germany Offsets France

May 16, 2014

German economic growth accelerated more than economists forecast last quarter, providing fuel to help the euro area’s recovery offset an unexpected stalling in France and renewed slump in Italy.

Expansion (GRGDPPGQ) in the region’s biggest economy accelerated to 0.8 percent from 0.4 percent in the the previous quarter, the Federal Statistics Office said today. Economists forecast 0.7 percent, according to the median of 40 estimates in a Bloomberg News survey. France, the second-largest economy, unexpectedly stagnated in the period, while Italy shrank 0.1 percent.

Germany is key to the 18-nation currency bloc’s drive to sustain a recovery from its longest-ever recession at a time when weak price growth is pushing the European Central Bank toward adding more stimulus. The ECB next meets to set monetary policy on June 5, when it will also present revised economic forecasts through 2016.

“Apparently, the divergence between the French and German economies is widening,” saidAlexander Koch, an economist at Raiffeisen Schweiz in Zurich. “While the preconditions for solid expansion are better in Germany than in other countries, slowing fiscal consolidation and an improving labor market point to an increasing convergence and broadening in euro-zone growth.”

Growth in Germany was driven by domestic consumption by private households and the government, the statistics office said. Investment in construction and machinery also increased. External trade subtracted from growth with lower exports and higher imports than the prior quarter, the office said.

Read more: Bloomberg.com