Driven by Germany, Europe posts 1.0 per cent growth

(BRUSSELS) - Europe's economy outpaced the United States and Japan in the second quarter, EU data showed Thursday, but analysts warned that the German-powered growth would likely lose steam in the second half.

The economy in the 16-nation eurozone grew by 1.0 percent between April and June, compared to quarter-on-quarter growth of 0.4 percent in the United States and 0.1 percent in Japan, the European Union's data agency said.

Europe was pulled up by Germany's best quarterly performance since reunification in 1990, with growth of 2.2 percent, according to the Eurostat figures, which confirmed a previous estimate.

"The breakdown of Eurozone GDP in the second quarter was relatively encouraging," said Howard Archer, chief European economist at research group IHS Global Insight.

But, he cautioned, "the eurozone recovery looks likely to lose some momentum over the coming months in the face of serious headwinds."

The challenges facing Europe include major spending cuts in heavily indebted countries across Europe which will "increasingly" kick in, likely slower global growth and inventory developments becoming less favourable, Archer said.

Clemente De Lucia, an economist French banking group BNP Paribas, said the data "signalled that eurozone recovery strengthened in the second quarter."

However, he added, "activity will probably lose momentum in the second half of the year."

Germany's export-driven economy could feel the pinch from a slowdown in global demand, he said.

"The German locomotive, albeit continuing to outperform its peers, will probably decelerate over the coming quarters," De Lucia said.

The Eurostat figures showed that the economy of the 27-nation EU, which includes non-euro members Britain and Poland, also grew by 1.0 percent in the second quarter. This compares to growth of 0.3 percent in the first quarter.

Greece was the only nation stuck in recession with an economic contraction of 1.5 percent, as the eurozone member battles to overcome a public deficit and debt crisis with severe spending cuts.

On an annual comparison with the second quarter of 2009, the eurozone economy grew by 1.9 percent in both the eurozone and the wider EU, slightly better than the August previous estimate of 1.7 percent.

The second quarter was marked by a 0.5 percent increase in consumer spending in the eurozone compared to 0.2 perecnt in the previous quarter.

Investments in the single currency area increased by 1.8 percent after a contraction in the first quarter, while exports and imports rose sharply, each by 4.4 percent.

Euro area and EU27 GDP up by 1.0% [Eurostat]