Europe's economic growth exceeds expectations

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The Independent Online

Europe's economic growth exceeded expectations today thanks to record-breaking gains in Germany.

The 16-nation eurozone grew by 1% in the second quarter - up from 0.2% in the first quarter, and higher than market expectations of 0.7% growth.

The figures, from EU statistics agency Eurostat, also showed that on an annual basis, the eurozone economy grew by 1.7%.

Germany set the bar as it reported a higher-than-expected growth rate of 2.2% in the second quarter.

The rate of output - the fastest pace seen in Germany in two decades - is twice the 1.1% improvement seen in the same quarter in the UK.

The positive results will bring some relief to the UK, which will need to see an improved eurozone economy to stimulate its own exports.

But while economists have acknowledged the figures are to be welcomed, many think the second quarter will be as good as it gets for the eurozone in 2010, as governments across the region pursue a raft of austerity measures to cut ballooning debt levels.

Carsten Brzeski, an economist with ING in Brussels, said the figures were a "clear sign the eurozone coped with the sovereign debt crisis better than expected" but added that the "eurozone growth story is still pretty much a German export story".

He said: "Although several other core Eurozone countries also showed promising developments, it is too early to become overly enthusiastic. In particular, the southern eurozone countries are not yet out of the woods."

Mr Brzeski said the German economy, the largest in Europe, was in a "league of its own" and put the impressive growth down to a catching up in the construction sector after the harsh winter and strong foreign demand for German goods.

But Mr Brzeski warned the current growth momentum was not sustainable, and was likely to slow back down to normal levels in the coming months.

Jennifer McKeown, senior European economist at Capital Economics, warned peripheral eurozone economies could still return to recession.

She added: "Meanwhile, the German recovery will weaken as global demand slows and its own fiscal consolidation begins next year."

The German government still has an official forecast for this year of 1.4% growth but its economy minister Rainer Bruederle said expansion of "well over 2%" was now possible.

The main reason for the growth in Germany and the wider eurozone, was due to high demand for exports, helped by a weaker euro, economists said.

The strongest performers in the eurozone, although significantly behind Germany, were the Netherlands with 0.9% growth, Austria with 0.9%, Belgium with 0.7% and France with 0.6%.

But the strong recovery was not shared by all countries across Europe, with Greece confirming its economy shrank once again in the second quarter - with GDP falling by 1.5%. Unemployment in the troubled country also hit 12%.

Economists predict the Greek economy is unlikely to recover for some time as austerity measures continue to hurt consumers and businesses.

The Greek government's overhaul includes a public-sector pay freeze, a VAT rise, new laws making it easier for companies to lay off workers and a higher retirement age.

While all other countries left recession, Spain and Portugal are still lagging behind, both reporting 0.2% growth in the second quarter.

The wider 27-country EU, which includes non-euro members such as Britain and Sweden, also grew by a quarterly rate of 1%.