Germany Drives Euro-Zone Economic Growth

LONDON—The euro-zone economy grew at its fastest pace in four years in the second quarter, driven by an unexpectedly strong surge in Germany, preliminary data showed Friday.

The combined gross domestic product of the 16 countries that use the euro grew 1.0% compared with the first three months of the year, the

Containers wait to be loaded on a ship at the harbor in Hamburg, Germany. The German economy was aided by strong global demand for its products.

GDP, which measures the total value of goods and services in the economy, was also 1.7% higher than in the second quarter of 2009, the sharpest annual increase since the first three months of 2008.

The figures were much stronger than economists' estimates in a Dow Jones Newswires survey last week for growth of 0.7% on a quarter-to-quarter basis and 1.4% on the year. The euro zone grew 0.2% on the quarter and 0.6% on the year in the first quarter.

The quarterly growth rate was marginally weaker than the 1.1% expansion in the U.K. in the second quarter, but outpaced the U.S., where GDP grew 0.6%, Eurostat said.

"No components are available yet, but exports, investments and a catching up of the construction sector after a harsh winter should have been the main growth drivers," Carsten Brzeski, an economist at ING, said in a note. "Today's numbers are a clear sign that the euro zone has coped with the sovereign-debt crisis better than expected."

Eurostat figures released Thursday showed industrial production, which has been boosted by exports from Germany and elsewhere, rose 2.5% for the second consecutive quarter between April and June. The revival in the sector has also fueled restocking as companies geared up production after stocks ran down during the recession.

Strong demand from around the world for Germany's exports helped Europe's largest economy grow 2.2% between April and June—the fastest quarterly rate since reunification in 1990 and far stronger than economists' expectations of a 1.4% expansion.

Rainer Brüderle, Germany's Economy Minister, said the new data for the first half of the year "bring growth of well over 2% in 2010 into the realm of the possible." So far the government has been forecasting growth of 1.5% for 2010.

France's economy, the second biggest in the euro zone, grew 0.6% on the quarter—slightly stronger than forecasts of 0.4% growth. French Finance Minister Christine Lagarde said she is "convinced" France will meet its target of 1.4% GDP growth for 2010.

However, economists warn that the euro zone's second-quarter expansion has been fueled by temporary factors, such as a rebound in construction in Germany and restocking.

Concerns that growth may be slowing in the U.S. and China have also fueled fears that euro-zone exports, particularly from Germany, will suffer. Economists say growth is likely to slow in the latter half of the year as stimulus measures run their course and governments cut spending to reduce their budget deficits.

"The quarter-on-quarter growth rate in [the second quarter] is unlikely to be sustained in the second half of the year," said Ken Wattret, chief euro-zone market economist at BNP Paribas. "Our feeling is that 2011 growth will be significantly weaker than 2010."

European Central Bank President Jean-Claude Trichet said last week that the euro-zone economy would be "much less buoyant" in the second half of the year than in the second quarter, although the third quarter could be stronger than was originally anticipated.

—Geoffrey T. Smith in Frankfurt and William Horobin in Paris contributed to this article. 

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