GLOBAL ECONOMIC TRENDS:MINISTER for Finance Brian Lenihan last night welcomed news of German and euro-zone growth, telling The Irish Times that the "strong economic performance in our major export markets – not least in Germany – bodes well for our own emerging recovery".
“However, in order to underpin this growth we need to continue the progress that we have made to date in improving our international cost competitiveness,” the Minister added.
His comments came as Germany’s stellar performance in the second three months – a 2.2 per cent rise quarter-on-quarter – stood in sharp contrast to Italy, Spain and Greece.
After initially rising, stocks fell and bonds gained as investors fretted that the German-led recovery might not be enough to counter risks elsewhere.
The euro was at $1.2763 against the dollar in late European trade, down 4 per cent on the week.
Bond spreads in “peripheral” states such as the Republic of Ireland, Greece, Portugal and Spain widened.
Although political leaders hailed the data as a signal that the euro zone had emerged from the deepest economic slump since the 1930s, much of the growth appeared due to one-off factors unlikely to extend into the second half of the year.
The German economy, which was responsible for more than half the overall euro-zone gain, in particular benefited from soaring exports because of the weaker euro, and pent-up construction demand following the harsh winter.
France, the bloc’s second-largest economy, grew at 0.6 per cent, moderately above market expectations. Along with Germany, it also raised its estimate of first-quarter output.
Italy, the third largest economy, expanded more slowly. Spain, which ranks fourth among the zone’s economies by size, remains in near stagnation. Greece was the only economy to shrink.
Of note was the performance of those countries that have well established austerity programmes in place – notably the Baltic states. Lithuania recorded the fastest growth rate of any of the EU’s 18 reporting countries, while Estonia ranked third. Latvia, by contrast, grew by a negligible 0.1 per cent.
The evidence from the Baltics, combined with that from Ireland, suggests that austerity at a time of extreme economic weakness need not result in a vicious deflationary cycle, as some economists have credibly suggested. – (Additional reporting: Copyright The Financial Times Limited 2010)
