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Germany props up sluggish eurozone growth

Germany has more than doubled its economic output in the first three months of 2016. But this has helped only so much in dragging the eurozone out of its ongoing growth weakness as revised figures are showing.

Between January and March, Europe's largest economy grew at its fastest rate in two years, outpacing both the rest of the eurozone and the Group of Seven most industrialized countries, according to data released by the German statistics office, Destatis, on Friday.

Driven by booming domestic demand, German gross domestic product (GDP) expanded by 0.7 percent in the first quarter - faster than the 0.3-percent rise it reported for the final three months of 2015 and more than analysts had predicted.

"Private households and the government increased their spending and investments were also higher," Destatis said in a statement, adding that a mild winter had boosted activity especially in the construction sector.

While capital goods investment also increased, foreign trade had a moderately dampening effect because exports did not grow as fast as imports, the data showed.

Higher investment

In view of the strong performance, German economy minister Sigmar Gabriel said the economy was on a "strong footing" at the beginning of 2016. He called for higher investment in education, modern infrastructure and innovation to use "this momentum" - a demand raised also by Germany's critics who have repeatedly said Germany should spend and consume more.

However, economists warn that the impact of weaker exports would eventually be felt as demand from emerging economies was expected to slow.

Sal. Oppenheim economist Ulrike Kastens told the news agency Reuters that trade remained the "problem child," and Holger Sandte of Nordea said growth would not remain so strong, but strong enough to support rising employment.

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Growth slowdown in Germany?

Dirk Schlotböller, economist at the DIHK federation of chambers of commerce, described first-quarter growth as a "turbo-charged start" boosted by favorable factors such as cheap oil prices, increased spending related to the refugee crisis and the mild weather. The growth figure was, however, "unlikely to be repeated again so quickly," he told the news agency AFP.

And ING economist Carsten Brzeski even warned of complacency which was to become "the biggest risk" to the German economy.

Eurozone faltering again

And indeed, a look beyond Germany's borders to the country's main trading partners in the 19-member eurozone provides less reason for optimism.

There, the European statistics office, Eurostat, was forced to lower a first growth estimate for the currency area to 0.5 percent quarter-on-quarter, down from 0.6 percent it had calculated in a flash estimate published at the end of April. One of the reasons why the first estimate came in at a higher quarterly rate of 0.6 percent was largely due to the strong industrial production increase in January.

This had changed, Eurostat said, as factories' output declined again in February and March - down by 1.2 percent and 0.8 percent respectively, and basically erasing the strong gain of 2.4 percent in January.

Analysts said the eurozone was facing a softer economic outlook in light of a number of factors, including uncertainty over the state of the global economic recovery, China's downturn and the prospect of Britain leaving the European Union.

"Today's data and the ongoing weakness of industrial surveys support our view that overall eurozone economic growth is set to slow from 1.5 percent last year to about 1.2 percent this year," said Stephen Brown, European economist at Capital Economics.

Eurostat growth figures showed French GDP at plus 0.5 percent, while Italy grew by 0.3 percent and Spain boosted output by 0.8 percent. Growth was reported from all eurozone countries except Greece and Latvia, which contracted by 0.4 and 0.1 percent respectively. Outside the currency area, the economies of Hungary and Poland also shrank in the first three months of the year.

uhe/kd (Reuters, dpa, AFP)

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