Germany and France feel the eurozone squeeze - Business News - Business - The Independent

Germany and France feel the eurozone squeeze

The two largest economies of the single currency see exports fall and growth forecasts reduced

The twin supporting pillars of the eurozone are shaking under the weight of the sovereign debt crisis, new figures suggested yesterday.

German exports fell at their fastest rate in two years in April, according to data from the country's statistics office. They were down 1.7 per cent on March to €90bn (£73bn), worse than the 1 per cent decline analysts expected.

The German economy bounced back strongly in the first quarter of this year, registering growth of 0.5 per cent, helped by surging exports both to the eurozone and emerging markets. Fears are now growing that this source of growth could be evaporating as the eurozone embarks on co-ordinated austerity policies.

The latest trade data showed that German exports to countries in the currency bloc were down 3.6 per cent. This was partially offset by an increase in exports to non-European markets such as China, which rose 10.3 per cent.

"The companies' orders situation has got worse because of the problems in the eurozone. Foreign trade will no longer contribute to growth this year," Stefan Schilbe of HSBC Trinkaus said.

Other indicators have pointed to a recent slowdown in German industry. Both the Ifo and the ZEW sentiment surveys slumped in May. And, in a worrying sign for Germany's struggling European neighbours, imports by the eurozone's dominant economy also fell, dropping by 4.8 per cent on the month to €73.9bn.

Countries with current account deficits, including Spain, Italy and Greece are hoping to turn around their ailing economies by increasing their exports to Germany.

There was also disappointing news for France, the second-largest eurozone economy, yesterday, with the country's central bank reporting that its business sentiment indicator for industry slipped in April. This led it to cut its forecast for the next 12 months. The bank now expects the French economy to shrink by 0.1 per cent in the second quarter of 2012, after previously projecting zero growth.

France will hold the first round of its parliamentary elections tomorrow, with the second round set for the following Sunday. The new Socialist President, François Hollande, needs a strong showing from his party to take control of the lower house, the National Assembly, if he is to enact his election promises to restore strong growth.

The eurozone gloom was compounded yesterday by reports that Spain is preparing, possibly as early as today, to request a bailout from the European Union and the International Monetary Fund to sort out its collapsed banking sector.

Spanish banks are estimated to need at least €40bn in new capital. The country's treasury minister has conceded that the capital markets are "effectively shut" to Spain.

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