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German Economic Surge Fuels Eurozone Expansion

  • RFE/RL

A Volkswagen employee polishes a VW Phaeton at the car company's "transparent" factory in Dresden.

A Volkswagen employee polishes a VW Phaeton at the car company's "transparent" factory in Dresden.

The German economy has shown the fastest growth since the country's reunification two decades ago.

Figures released today showed the economy grew 2.2 percent in the period April to June compared with the previous quarter -- much higher than economists' forecasts.

The figures showed the economy benefiting from an increase in global demand for German exports, especially of automotive and engineering goods.

The statistics office also revised up the first-quarter growth rate to 0.5 percent – more than doubling the initial figure of 0.2 percent.

Last year, Germany’s economy shrank by 4.7 percent -- the worst performance since World War II.

The Federal Statistical Office, which released the new numbers, said the recovery, which faltered at the turn of the year, "is really back on track."

The news was welcomed by German Economy Minister Rainer Bruederle, who said, "This shows that the government's measures to speed up growth also worked. This upswing is not yet an economic miracle, but it's an XL type of upswing, leaning toward XXL.

"Exports are booming and investments are slowly but steadily picking up. The consumer climate is improving."

Sustainable Pace?

Germany's rosy picture contrasts sharply with that of Greece, whose economy shrank by 1.5 percent in the second quarter. But Germany's growth helped power an expansion in the 16-country eurozone overall.

Figures out today showed the eurozone economy grew by 1 percent in the second quarter. That's the fastest pace since 2006 -- and shows Europe growing at a healthier pace that the United States in the same period.

That contrasts with expectations of just a few months ago, when the single currency zone was threatened by a severe government debt crisis.

But while today's numbers are positive, economists say the pace might not be sustainable.

"We suspect that in most cases [growth in eurozone countries’ economies] is likely to be down to fairly strong exports rather than strong household spending and investment," Ben May, an economist with Capital Economics, a research and consultancy firm in London, tells RFE/RL. "So clearly that does raise the risk that perhaps the economy is functioning on only one engine. If that is to stall, then the recovery could lose momentum fairly sharply."

Economists point to a fall in industrial production recorded in June throughout the eurozone. Industrial output dropped by 0.5 percent from the previous month in Germany, considered the EU’s strongest manufacturer. And France – which comes in second in terms of production -- recorded a 1.6 percent decline.

The production decline, economists predict, will slow economic growth.

The eurozone is currently heavily reliant on its industrial sector, as domestic consumption has not managed to climb back to pre-crisis levels.

Adding to the uncertainty are the austerity measures enacted by many governments in the region -- with Greece, Spain, Ireland, and Portugal among those cutting spending and raising taxes.

If that leads to a deceleration in growth, for eurozone GDP, today's figures may be as good as it gets for some time.

written by Ashley Cleek, with agency reports