German, French Growth Weakens In First Quarter

ByBridgeNews Growth in Germany and France, the euro zone's two largest economies, was weaker than expected in the first quarter, as exports and capital investment slowed and companies' inventories declined. Germany's gross domestic product grew 1.6% from a year earlier and 0.4% from the previous three months, the slowest quarterly expansion since the third quarter of 1999. French GDP was up 2.7% on the year and 0.5% on the quarter. The GDP figures are the latest indication that the euro zone is not immune to the global economic slowdown. Robert Prior-Wandesforde, economist at HSBC in London, says there is now a "good chance" that Germany's GDP will be flat or slightly lower in the second quarter. "We believe the economy is effectively dependent on consumption growth rebounding very quickly. While this is not impossible in view of personal tax cuts at the beginning of the year, the combination of rising unemployment and big real-wage declines suggests one should not put too much confidence in this," he says. Germany's latest manufacturing, employment, and industrial output figures have painted a picture of a rapid slowdown in activity. The key index of business sentiment produced by the Munich-based Ifo economic institute, released May 22, slid more sharply than expected to a reading of 92.5 in April, from 93.9 in March. Growth in the first quarter was dragged down by lower than average private and state sector consumption expenditure and a downturn in real gross investment. Export growth fell to 8.6% compared with the same period last year, from 12.9% a year earlier, while import growth was slashed to 6.9% from 12.3%. In France, economic activity softened in nearly every major sector of the economy to produce the lowest growth since the 1998 fourth quarter, national statistics agency INSEE said. Slower growth in manufacturing production was only partly offset by robust auto output, and fixed investment fell. Exports of French manufactured goods rose just 0.3%, while imports fell 2.0%. Lower inventories subtracted 0.8% from French economic growth in the first quarter.