Eurozone economy gets a lift from Germany in Q3

Paris, Nov 15 | Updated: Nov 16 2005, 05:30am hrs
Prospects for a modest recovery in Europes economy got a boost on Tuesday when Germany announced an export-driven rise of 0.6% in third quarter growth, lifting the pace of euro zone expansion to similar levels.

The German report followed news last week of a 0.7% rise in French third-quarter GDP, helping secure a 0.6 percent rise in GDP for the euro zone as a whole as estimated by the EU statistics office, the best quarterly rate since early 2004.

But there was continued cause for concern as officials said private consumption, long the Achilles heel of Europes largest economy, actually shrank in the period, while Italy as well as the Netherlands announced slightly weaker growth than expected.

And a monthly indicator of German investor sentiment unexpectedly deteriorated, according to the countrys ZEW institute that compiles it. Financial markets believe an inflation-wary European Central Bank will seize on any sign of upturn to raise interest rates but politicians, business and trade unions have told the ECB it could kill the recovery in its infancy if it moves too soon.

The call on the ECB to hold fire for now was reiterated on Tuesday by Laurence Parisot, president of the French business federation, MEDEF.

News of the mild pickup in the worlds third biggest economy in the July-September period, looked similar to that from France but the two differ quite markedly. French GDP was buoyed by the kind of consumer spending strength that Germany lacks. Italy, which combined with Germany and France represents about 70 percent of the euro zones economic output, generated quarterly growth of 0.3 percent, as did the much smaller Dutch economy, both a touch lower than economists had forecast. If this improved euro zone growth performance is to be sustained and extended, it is vital that domestic demand increasingly kicks in across the region, Howard Archer of Global Insight economic consultancy said of the euro zone.