• Aug. 17, 2017, 10:15 am

French economy gathers steam, German growth slows

By Ingrid Melander and Michelle Martin

PARIS/BERLIN (Reuters) – France posted its fastest economic growth rate in two years in the first three months of 2015 but Germany slowed from the robust pace it rattled along at late last year, official data showed on Wednesday.

Quarterly French growth of 0.6 percent surpassed market expectations for a 0.4 percent expansion but Europe’s largest economy disappointed by growing 0.3 percent, well below the 0.7 percent rate of the last quarter of 2014.

Euro zone countries appear to have benefited from cheap energy and food prices, a weak euro and European Central Bank money printing so far this year.

But with the price of oil way higher than it was in January and government borrowing costs starting to back up despite the ECB’s bond buying, there are clouds on the horizon.

The GDP number for the euro zone as a whole is due at 0900 GMT and forecast to show solid growth of 0.5 percent, a rate it did not manage in any quarter of 2014.

The French government has predicted its economy would grow by at least 1 percent this year after eking out only 0.2 percent last year. Wednesday’s data suggested that could be exceeded though probably not by enough to dent a double-digit unemployment rate.

“We will be at more than 1 percent at year-end,” Finance Minister Michel Sapin told BFM television after the data was published.

The strong quarter-on-quarter data was supported by consumer spending, corporate investment, industrial output and inventories, while exports slowed. The Bank of France has forecast growth will drop to 0.3 percent in the second quarter.

Italy, the euro zone’s most sluggish economy for over a decade, picked up by 0.3 percent in Q1, just beating forecasts. That left GDP flat year-on-year, the first time it had not posted an annual contraction since the third quarter of 2011.

Italy is widely forecast to continue to lag most of its peers this year, even though a return to modest growth is expected for the first time since 2011.

GERMAN TRADE DRAGS

The German statistics Office said public and private consumption had contributed positively to the economy in the first quarter. Trade was a drag as imports rose more sharply than exports.

While Germany has traditionally been an export-led economy, household spending is now the main growth driver as weakness in euro zone trading partners and further afield cuts foreign demand.

Chinese factory output, investment and retail sales data all undercut expectations on Wednesday, reinforcing expectations that Beijing will have to step up its efforts to boost a cooling economy.

The world’s second largest economy is a huge market for German goods and services.

“Weak global trade is hitting German industry … and if the consumers start refraining from spending too, overall economic growth will decline rapidly,” said Thomas Gitzel, chief economist at VP Bank.

Spain reported 0.9 percent first quarter growth two weeks ago, marking its fastest rate of expansion since 2007. That is unlikely to be bettered by many, or any, of its peers.

Prime Minister Mariano Rajoy’s government, which faces elections later this year, has raised its 2015 growth target to 2.9 percent.

The Dutch economy grew 0.4 percent in the first quarter of 2015 compared to the previous three months whiled Finland’s GDP shrank 0.1 percent, preliminary data showed on Wednesday.

The Finnish economy has contracted for three years in a row and has yet to return to 2008 output levels.

(Additional reporting by Gavin Jones in Rome, Writing by Mike Peacock; editing by Jeremy Gaunt)

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