German power sends Europe's economy leaping forward

Much stronger-than-expected growth boosts hopes for European recovery

A sudden burst of acceleration from the German economy, the largest in Europe, enabled the single currency zone, Britain's most crucial trading partner, to post its best growth figures for more than two years in the second quarter, new data revealed yesterday.

Germany's economy grew by 2.2 per cent over the three months to the end of June, boosted by a strong performance from its construction sector, as well as a marked improvement in exports. The growth, the fastest recorded by Germany since reunification, was the main driver in helping the eurozone as a whole to post 1 per cent growth for the second quarter.

Other members of the single currency zone are also bouncing back, with Greece now the only eurozone country still officially in recession. Among the bigger economies, Netherlands and Austria both grew by 0.9 per cent in the second quarter, while Belgium and France were up by 0.7 per cent and 0.6 per cent respectively. Spain and Portugal are also recovering, though less quickly, with both economies growing 0.2 per cent.

While not all of the eurozone is speeding ahead, the data will relieve economists concerned that the debt crisis that engulfed Greece earlier this year – and threatened to spread across the eurozone – does not appear to have damaged the recovery so far.

"After three difficult months of eurozone battering, these numbers will help to heal the wounds," said Carsten Brzeski, an economist at the Dutch bank ING. "For the first time since the second quarter of 2009, the eurozone outpaced the US economy."

The data will also be welcomed in the UK, where the biggest threat to the sustainability of the bounceback from recession is a further slowdown on the continent.

David Kern, economic adviser to the British Chambers of Commerce, said the German data should also encourage the UK in its efforts to rebalance the economy away from a dependence on the City and other service sector businesses towards manufacturing and exports. "UK ministers can learn lessons from Germany's export success," Mr Kern said.

However, despite the surprising strength of the second-quarter figures, a great deal of anxiety remains about the outlook for the months ahead. The mixed picture across the eurozone, with the more indebted Southern members of the bloc seeing only a very muted recovery, worried some analysts, with strategists pointing out that there have already been signs of a slowdown in recent weeks.

As a result, the European Central Bank remains very cautious, warning earlier this week that it remained very nervous about financial stability. Its President, Jean Claude-Trichet, has also warned that the second half of the year is likely to be much weaker than the first half.

"Germany should not be equated with the euro area," said Jorg Kramer of Commerzbank. "Excluding Germany, growth in the euro area should only come in at 0.8 per cent this year [and] for the euro area as a whole, we are now looking for a rise of 1.5 per cent – this is even shy of trend growth."

Chris Williamson, of Markit, added: "It remains to be seen whether the buoyancy of the eurozone's core spills over to the periphery, or whether the periphery drags the core down."