German economy on the mend

Brussels - Germany posted Friday its best quarterly growth since reunification, driving Europe past the US in the recovery stakes as the continent recorded its best economic performance in four years.

Accelerating recoveries in Britain, France and even Spain also helped nudge Europe's main stock markets upwards, with only debt-laden Greece slipping deeper into recession as savage cuts scythe through spending.

However, with a growth rate of 2.2% between April and June, Germany was "playing in a league of its own," said senior ING economist Carsten Brzeski.

Jennifer McKeown of London-based Capital Economics noted that the 1.0% expansion across the 16 eurozone nations and the 27-member European Union as a whole was "the sharpest in four years."

It beat a 0.7% forecast and outpaced that of the US, which posted a quarterly gain of 0.6% - down from 0.9% between January and March.

However, McKeown also said the surge "still looks worryingly lop-sided," citing greater global demand in industry and the depreciation of the euro.

Welcome relief

Europe had barely managed 0.2% growth up to March, but Britain also posted 1.1% growth with France holding at 0.6% - providing welcome relief across the world's biggest open market as fears grow that the economies of the United States and China are running out of steam.

Compared to the same period of 2009, European growth measured a very healthy 1.7%.

While Greece's contraction worsened to 1.5%, even Romania said it had exited recession after seeing its GDP shrink for the previous six quarters.

Chris Williamson of London-based Markit economists said German manufacturers were winning export sales because concerns about weaker Mediterranean partners were helping to keep the euro weak.

"It remains to be seen if the buoyancy of the eurozone's core spills over to the periphery, or whether the periphery drags the core down."

After implementing draconian spending cuts in order to grasp its own €20bn lifeline from the EU and International Monetary Fund, Romania posted a quarterly growth rate of 0.3%.

The Baltic nations of Estonia and Lithuania also returned to positive growth, according to the official EU data, with only Sweden's recovery slowing, although it still logged a 1.2% improvement.

With a 4.1% increase compared to the second quarter of 2009, "such quarter-on-quarter growth has never been recorded before in reunified Germany", the national Destatis office said.

Communist East and free-market West Germany unified in October 1990 after a 45-year separation.

After suffering its worst post-war recession in 2009, "we are now experiencing XL growth," Economy Minister Rainer Bruederle added.

Analysts polled by Dow Jones Newswires had forecast a second-quarter rise of 1.4%.

Julian Callow of Barclays Capital predicted German growth would reach "3% or even slightly more" for 2010 as a whole.

France - Europe's biggest economy after Germany - experienced a recession last year of 2.5%.

But President Nicolas Sarkozy's government now expects growth of 1.4% this year.

The news was warmly welcomed by investors at the start of trading on Europe's stock markets.

Frankfurt stocks still rose 0.16%, London won 0.57% and Paris added 0.38% in morning trade, as investors went bargain-hunting after two days of heavy losses.

Other countries to fuel the sense of optimism included the Netherlands where GDP grew 0.9% in the second quarter.

Spain, which only came out of recession in the first quarter with a 0.1% spurt, saw its economy grow by 0.2% in the second quarter.

The EU also released data showing the eurozone's global trade balance powering back into the black in June, with a €2.4bn surplus after a heavy deficit in May.
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