Recession avoided but ‘austerity not going away’

Germany pulled the eurozone’s economy back from the brink of recession at the start of 2012 but stagnation in France and contraction in southern Europe underlined sharply differing fortunes in the 17-nation bloc.

Overall gross domestic product was unchanged in the first quarter following a dip at the end of last year, data showed, meaning that the eurozone missed slipping officially into recession by the narrowest possible margin.

But a surprisingly strong showing from Germany, whose exporters are helping it to cope with the eurozone crisis, flattered dismal performances in most major economies.

“Germany is leading the bloc, but this doesn’t mean we will have a strong rebound. Austerity is not going away and southern European economies are really struggling,” said Mads Koefoed, a senior economist at Saxo Bank. “We are looking at stagnation to very mild growth in the year to come.”

Most eurozone governments are imposing austerity policies, often at great cost to their electorates and the chances of economic growth, hoping to counter the debt crisis by cutting budget deficits. However, new French president François Hollande met chancellor Angela Merkel in Berlin yesterday to argue for adding measures to boost growth to the formula.

Yesterday’s data showed a two-speed eurozone, with Italy’s recession deeper than feared and Greece suffering something akin to a depression.

GDP in Germany, Europe’s biggest economy, rose 0.5% on the quarter, confounding expectations of a more modest rise and lifting the rest of the 17-nation currency bloc.

While the eurozone’s stagnation offered little cheer, it was still better than the 0.2% contraction most economists had expected. Two successive quarters of falling GDP would have marked the second recession since 2009.



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