Tags: Recovery | Germany | France | Slowing | Down

Recovery in Germany, France Seen Slowing Down

Wednesday, 08 Jun 2011 09:18 AM

Falls in German industrial output and exports showed the rapid recovery in Europe's biggest economy was slowing amid weaker global growth, raising concern for a region where indebted economies are already struggling.

The euro zone's number two economy France also showed signs of a deceleration with a fall in exports, suggesting the continent's growth engines will provide less of a boost for their neighbors in the future.

German exports posted their biggest drop in more than two years in April after a surge in the previous month and industry output fell 0.6 percent, confounding expectations for an unchanged reading, data showed on Wednesday.

And while Germany's trade balance narrowed more than expected as imports fell for the first time month-on-month this year, France's trade balance widened to a record deficit in April, deteriorating more sharply than expected.

Powerful performances by the German and French economies propelled growth in the euro zone well above forecasts in the first quarter, while peripheral economies suffer. Portugal fell back into recession and Italy grew by just 0.1 percent.

But Germany — the euro zone's largest economy — is widely expected to return to more normal levels of growth in the next few months as interest rate hikes in the euro zone raise the bar on riskier investment plans and China's red-hot economy cools.

"We see euro zone growth falling back to around 0.4 percent quarter-on-quarter for an extended period," said Howard Archer, economist at IHS Global Insight.

"Fiscal tightening increasingly kicking in, slowly rising interest rates and recurrent sovereign debt tensions are all expected to take a toll on growth," Archer said.

The European Central Bank is likely to signal a July interest rate rise when it meets on Thursday, while Federal Reserve Chairman Ben Bernanke unnerved markets with downbeat assessment of the U.S. economy.

SLOWDOWN EXPECTED

Other economists did not seem alarmed by Wednesday's numbers, pointing to one-off effects and corrections from the previous months' strong readings, but noted that the pace of recovery was slowing.

Commenting on Germany's industry output drop in April, DekaBank economist Andreas Scheuerle said the situation was not as bad as it may look at first sight.

"The construction industry has increased output by almost 50 percent since December, order income rose by 20 percent. It is therefore looking very good," Scheuerle said.

"In Germany, things continue to progress well. We are shifting down a gear. That's good. We can't continue to grow at such high pace," he added.

Societe Generale economist Michel Martinez said France's trade balance would not keep sinking deeper into deficit after one-off factors drove up the gap in April.

"We expect the trade deficit to bounce back to around 6 billion euros in May," he said in a research note.

"Assuming a trade deficit close to 6 billion euros in May and June, the drag on GDP (gross domestic product) growth in Q2 in volume terms would be close to 0.2 percent of GDP."

After France's economy expanded in the first quarter at the fastest pace in five years, the French government has said that it expects growth to moderate although it considers the economy is on track to achieve its 2011 growth target of 2 percent.

© 2017 Thomson/Reuters. All rights reserved.

 
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Falls in German industrial output and exports showed the rapid recovery in Europe's biggest economy was slowing amid weaker global growth, raising concern for a region where indebted economies are already struggling. The euro zone's number two economy France also showed...
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2011-18-08
Wednesday, 08 Jun 2011 09:18 AM
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