Euro-Area Economy Avoids Second Recession on German GDP
Germany helped the euro area avoid its second recession in three years as growth in the region’s largest economy offset contractions in peripheral countries.
Gross domestic product in the 17-nation euro region stagnated in the latest quarter compared with the prior three months, the European Union’s statistics office in Luxembourg said today. The median forecast of economists surveyed by Bloomberg was for a 0.2 percent contraction. The German economy expanded 0.5 percent, compared with the 0.1 percent median estimate by economists in a separate survey.
Germany’s expansion is helping counter declining GDP in the euro area’s peripheral economies amid a deepening debt crisis. European finance ministers meeting in Brussels are pondering the prospect of Greece exiting the currency union, while voters from France to Greece rejected austerity plans by punishing administrations at the ballot box.
“Germany is holding up the rest of the euro zone,” said Nick Kounis, head of macroeconomic research at ABN Amro in Amsterdam. “While it will remain the outperformer, I doubt this will happen again in the second quarter,” he said, adding that for the euro area “the second quarter is likely to be negative.”
The euro rose against the dollar today and traded at $1.2847 at 12:32 p.m. in London, still near its lowest in almost four months amid mounting doubts that Greece can avoid an exit from the currency bloc. The Stoxx Europe 600 Index (SXXP) gave up earlier gains and was down 0.6 percent at 246.81, while the MSCI Asia Pacific Index declined 0.5 percent.
The debt crisis has already pushed eight euro-area nations into a recession, commonly defined as two consecutive quarters of contraction, with Spain’s economy the latest to succumb. France, the region’s second-biggest economy, said today that it avoided contraction, recording zero growth in the first quarter, in line with economists’ median forecast.
In Germany, GDP rose 0.5 percent from the fourth quarter, when it fell 0.2 percent, the Federal Statistics Office said in Wiesbaden today. Growth was mainly driven by net trade as exports rose, the office said. Domestic consumption also increased, while investment declined.
Continental AG Chief Financial Officer Wolfgang Schaefer said on May 3 that Europe’s second-largest auto-parts maker may raise its sales forecast next quarter. Earnings at Volkswagen AG, Bayerische Motoren Werke AG and Daimler AG exceeded expectations.
Still, inconclusive elections in Greece and concerns about Spain’s creditworthiness are clouding the outlook for euro-area nations including Germany. German investor confidence fell from a two-year high in May, the first decline since November, the ZEW Center for European Economic Research in Mannheim said today.
Divisions within the euro area and political deadlock in Greece may hurt growth prospects for the 10 EU nations outside the currency region. U.K. Chancellor of the Exchequer George Osborne said today that economies across Europe including Britain are being damaged by concerns over the future of the euro region rather than austerity measures.
“This is a time of considerable uncertainty in the euro- zone economies,” Osborne said today as he arrived for talks in Brussels. “And that uncertainty is undermining the entire European recovery.”
In eastern Europe, Hungary headed toward joining the Czech Republic and Romania in a recession. The Hungarian economy contracted 1.3 percent from the previous three months after stagnating in the October-December period. Czech GDP shrank 1 percent for the third consecutive decline, while Romania extended its slump to a second quarter with a 0.1 percent drop.
In France, Francois Hollande was sworn in as the nation’s new president and said he will make proposals to counter the financial crisis that would cut government debt while stimulating economic growth. Hollande will meet with German Chancellor Angela Merkel later today, underscoring rising concerns that Greece is headed out of the euro.
Those concerns deepened as Greek President Karolos Papoulias failed to secure an agreement on a unity government and avert new elections, marking a second week of political gridlock in Athens. The country’s biggest anti-bailout party, Syriza, defied overtures to join the government.
In the U.S., retail sales probably slowed in April, an economist survey indicated. The U.S. consumer-price index was little changed in April compared with March after climbing 0.3 percent the prior month, according to the survey median before a Labor Department report.
In China, foreign direct investment fell for a sixth month in April, the longest stretch of declines since the global financial crisis, amid renewed turmoil in markets. Inbound investment dropped 0.7 percent from a year earlier to $8.4 billion, the Ministry of Commerce said today in Beijing. That compares with a 6.1 percent drop in March.
Elsewhere in the Asia-Pacific region, minutes of the Reserve Bank of Australia’s May 1 meeting showed the central bank made its deepest interest-rate cut in three years to help revive below-average growth, counter rising mortgage costs and shore up consumer confidence. Singapore’s March retail sales grew 9.1 percent from a year earlier, more than economists estimated, compared with a revised 20.1 percent in February.
In Europe, an “escalation of the sovereign-debt crisis” is the biggest risk to the euro-area outlook, the European Commission warned on May 11. The region’s GDP will probably drop 0.3 percent this year before increasing 1 percent in 2013, the EU executive said in its semi-annual economic forecasts.
The economies of Greece, Italy, Spain, Portugal and the Netherlands are all projected to shrink in 2012, with Spain the only euro member seen remaining in contraction in the following year.
“The outlook is still one of weak growth for the euro zone,” said Jonathan Loynes, chief European economist at Capital Economics in London, before the report was released. “It won’t avoid recession for much longer.”
From a year earlier, euro-area GDP also was unchanged in the first quarter. The statistics office is scheduled to publish a breakdown of first-quarter GDP next month.
To contact the reporter on this story: Svenja O’Donnell in London at firstname.lastname@example.org
To contact the editor responsible for this story: Craig Stirling at email@example.com