Germany drives record Europe recovery, but experts fear peak

13th August 2010, Comments 0 comments

Powerhouse Germany posted its best economic growth since reunification on Friday, driving Europe past the United States in a four-year record but analysts warned the recovery could be peaking out.

The strong performance, bolstered by peers France and Britain, sent stock markets higher in early trade but the optimism faded, with traders cautious after another set of weak US data stoked fears the global economy faces growing problems.

With 2.2-percent growth between April and June, double the forecasts, Germany was "playing in a league of its own," said Brussels-based ING economist Carsten Brzeski.

After suffering its worst post-war recession in 2009, "we are now experiencing XL growth," German Economy Minister Rainer Bruederle said of the data, the best since reunification in 1990 after a 45-year Cold War division.

Expansion across the 16-nation eurozone and the 27-member European Union as a whole was 1.0 percent, "the sharpest in four years," Jennifer McKeown of London-based Capital Economics said.

Europe outpaced US second-quarter growth of 0.6 percent, down from 0.9 percent in the previous three months.

But some analysts questioned whether Europe's expansion can be sustained.

Chris Williamson of London-based Markit economists argued that German manufacturers were winning export sales because concerns about weaker Mediterranean partners were helping to keep the euro down.

"It remains to be seen if the buoyancy of the eurozone's core spills over to the periphery, or whether the periphery drags the core down," Williamson said.

Frankfurt-based Commerzbank analyst Christoph Weil agreed that the German growth, routinely described as "stellar", was above all driven by rising overseas demand and low interest rates.

"This speed is unlikely to be sustained," he cautioned.

World Bank President Robert Zoellick, speaking in Latvia which endured the EU's deepest recession with a contraction of a whopping 18 percent in 2009, said the "very good" news from Germany did not mean policymakers could rest easy.

"Not everyone can export their way out of a crisis," Zoellick said, referring to Germany's trump card. "We all have to be alert and anticipate."

Amsterdam-based Nick Kounis of ABN AMRO said worries over a "double-dip" recession now centre "on the other side of the Atlantic."

Today's picture could be misleading, Kounis said, warning that spending cuts in almost all countries will make for a long and bumpy road while "the deepening of Greece's recession is a timely reminder" of the underlying problems.

Greece's economy shrank 1.5 percent in the second quarter after 0.8 percent in the first, hit by savage cuts agreed with the EU and the International Monetary Fund in exchange for a massive bailout loan.

"All in all, we think the second quarter marked the peak of the bounce-back," Martin Lueck of Frankfurt-based UBS Investment Research said.

Milan-based UniCredit economist Chiara Corsa said he would "stick to" eurozone growth forecasts of 1.5 percent this year, slipping to 1.3 percent in 2011.

On the upside, Britain posted a 1.l percent expansion and France -- Europe's biggest economy after Germany -- 0.6 percent. Italy's expansion was by 0.4 percent.

Paris now expects growth of 1.4 percent this year, although Oscar Bernal of ING in London also warned of a slowdown there, citing one of the eurozone's largest fiscal deficits.

The Netherlands and Austria each performed strongly with a 0.9 percent gain, and Belgium's economy expanded by 0.7 percent after stalling in the first quarter.

Heavyweight struggler Spain, which only escaped recession in the first quarter, saw its economy grow by 0.2 percent, which was the same figure for Portugal.

The eurozone's trade balance also delivered a 2.4-billion-euro June surplus on Friday while US data was mixed again, with 0.4-percent rise for retail sales for July welcomed but below forecasts for a gain of 0.5 percent.

© 2010 AFP

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