May 15, 2008 / 8:49 AM / 12 years ago

WRAPUP 5-German GDP stuns, Europe shines, but it may be over

(Adds eastern Europe results)

* Best German quarterly growth performance in 12 years,

* French growth surprises too

* Now things will slow, say ECB’s Trichet and others

* Inflation and cost of living a threat

* Britain and Spain seen at risk as housing boom ends

By Brian Love

PARIS, May 15 (Reuters) - Stunning German growth and a surge in France produced a defiantly healthy showing from Europe when estimates of economic growth for the first three months of 2008 were published on Thursday.

Economists said that may be the end of it as Europe succumbs to an international downturn, but the news showed that, thanks to business investment, the region began the year in far better shape than the stagnating U.S. economy. “Germany is doing quite well and we should raise a glass of the fizzy stuff to celebrate it. But it is not quite a new ‘wunder’,” said Bank of America economist Holger Schmieding.

There were worrying signs behind the headline news from Germany and France, notably weak consumer demand as soaring commodity prices push up the cost of fuel, food and other essentials.

The attention-grabber though was that German gross domestic product rose 1.5 percent from the last quarter of 2007, twice as fast as anticipated by economists and better than anything seen in 12 years.

Corporate investment was the main reason for the five-fold rise in the quarter-on-quarter growth rate from 0.3 percent in the last three months of 2007, the statistics office said. It did not provide a detailed breakdown.

After the German growth data, it was little surprise when the European Union’s statistics office said growth for the euro zone as a whole beat forecasts, up 0.7 percent from the last quarter of 2007. That contrasted with just 0.2 percent for the United States, using a measure comparable with the estimates published in Europe. The U.S. economy has been hit by a severe slump in house prices and the collapse of the subprime mortgage loan market after several years of unchecked spending.

RESILIENCE

European Central Bank President Jean-Claude Trichet said the European news, while positive, merely confirmed what he had been saying for some time, namely that the first quarter would be good and the ensuing period slower.

France’s economic growth in the first three months of the year was a healthy 0.6 percent, compared with the preceding quarter, the statistics office there said.

In France, like Germany, corporate investment was behind the overall rise, along with a better result from foreign trade.

More worryingly, consumer demand, traditionally a stronger source of growth for France than for export-dependent Germany, stagnated in the quarter.

Companies such as Unilever and Nestle have raised their sale prices, passing the bill for their higher raw materials costs on to consumers.

European Statistics office Eurostat confirmed that annual inflation in the euro zone was 3.3 percent in April, below the record 3.6 percent of March but well above the ECB’s goal of just below two percent.

Among smaller economies, Austria’s first-quarter GDP growth was 0.8 percent and Greece’s 1.1 percent. However, Portugal’s economy shrank slightly, losing 0.2 percent from the last quarter of 2007, and the Dutch economy failed to repeat its strong show of late 2007, reporting growth of 0.2 percent.

Among the racier economies of central and eastern Europe, Slovakia, aiming to join the euro zone in 2009, reported a somewhat slower first-quarter, while Czech growth was slightly below expectations at 5.4 percent year on year. (For story click on [nL15903221].

TROUBLE COMING?

In Germany, there was no hint however of any major takeoff in household consumption and some economists noted that the GDP number could have got a big boost from the fact that less snow last winter probably provided an ephemeral boost to the building industry. Carsten Brzeski, an economist for Dutch finance group ING, said it was possible Germany economic growth would even hit standstill in the second quarter.

“A Chinese proverb says that it is better to light a candle than to curse the darkness,” he said. “However, at the current juncture one should not be blinded by the German GDP numbers.”

Among economies more dependent on housing markets to spur consumer spending, the news is not so encouraging.

In Spain, where growth had outstripped the euro zone average for a decade, data on Wednesday showed a first quarter expansion of just 0.3 percent over the previous quarter — the weakest the country has seen since 1993, a recession year.

British growth slowed in the first quarter to 0.4 percent from 0.6 percent and central bank chief Mervyn King said on Wednesday the country should brace for continued house price falls, and possibly a quarter or two of economic contraction. (With reporting from Reuters newsrooms in Brussels, Berlin, Paris, London, Madrid, Vienna, Bratislava and Prague)

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