WRAPUP 4-Euro zone GDP shows frailty as more austerity looms

* European GDP remains weak, Q1 figures shows

* Germany, France report marginal growth

* Spain exits recession but GDP rise marginal

* Fresh Spanish austerity measures unveiled
* Euro states’ deficit-reduction plans to weigh

(Adds demand drop, export lift in France; data on Portugal)

By Brian Love

PARIS, May 12 (BestGrowthStock) – The euro zone economy made a weak
start to 2010 as paltry growth in powerhouses Germany and France
weighed, while debt reduction efforts in the region’s weaker
states look set to puncture hopes of faster expansion in coming
quarters.

Economists predicted a better second quarter in which
activity lost due to bad weather early in the year would be
recouped.

But they said austerity measures being prepared by
governments desperate to shrink bloated debts could compound
growth weakness, notably in Spain — which announced $15 billion
euros of fresh cuts over two years — Greece and Portugal.

Quarterly growth for the euro zone overall was 0.2 percent
in the January-March period after a flat final quarter of 2009.
[ID:nnLDE64A127]

German GDP also grew 0.2 percent to mark a fourth straight
quarter above zero. That was above forecast but lacklustre next
to the pace of post-recession recovery in the United States, not
to mention the strength of China and other emerging market
economies. [ID:nLDE64B0BD]

France, the euro zone’s second-largest economy after
Germany, reported a 0.1 percent increase, falling short of
expectations, and growth in the fourth quarter of 2009 was
trimmed to 0.5 percent from 0.6 percent. [ID:nLDE64A1PZ]

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For a graphic on euro zone GDP, click on
http://graphics.thomsonreuters.com/10/EZ_GDPC0510.gif

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“Germany and the euro zone are likely to continue lagging
the global economy and what we’re seeing in the United States,”
said Joerg Zeuner, economist at VP bank.

On a more positive note for Germany if not the wider region,
Commerzbank’s Joerg Kraemer said Germany’s export prowess left
it well positioned to outperform the rest on the back of an
upturn in global trade.

Others expect a broader second-quarter rebound as countries
recoup the losses caused by harsh winter conditions at the start
of the year, but remain cautious beyond that, given moves to
shrink national deficits through spending cuts and tax hikes.

“Unfortunately, the outlook beyond the spring sprint is less
rosy. Even if there are past examples of expansionary fiscal
consolidation, austerity programmes in several euro zone
countries will weigh on growth in the coming years,” said
Carsten Brzeski, economist at ING financial Markets.

DANGER ON THE PERIPHERY

Most of the latest GDP reports were barebones estimates to
be fleshed out in coming days but France’s fuller first readout
gave some hint about trends: consumer spending, traditionally a
big driver of activity there, fell flat in the first quarter,
while the global trade upturn clearly helped, lifting exports
3.9 percent versus the last quarter of 2009.

Italy reported a 0.5 percent GDP rise for the January-March
quarter, versus a final quarter of 2009 when GDP declined 0.1
percent [ID:nLDE64B0W7].

The picture was mixed for the weakest economies of the euro
zone periphery, which are under the heaviest pressure to pursue
severe austerity programmes to control debts.

Spain, which accounts for more than 10 percent of total euro
zone GDP and is the biggest of the economies hit particularly
hard by the end of the credit boom and subsequent global
economic plunge of 2007-2009, reported 0.1 percent growth —
finally exiting recession after nearly two years of contraction.
[ID:nMDT009020]

After the figures, Prime Minister Jose Luis Rodriguez
Zapatero, whose debt-stricken country was recently hit by a
sharp rise in refinancing costs in the financial markets,
announced further tough austerity measures to get public
finances into better shape. [ID:nLDE64B0MM]

Greece, where the euro-weakening debt crisis of recent weeks
erupted, reported a 0.8 percent GDP drop for the first quarter,
which while bad was much less severe than the 1.4 percent drop
forecasters had flagged for a country which is now reliant on
outside aid, a first in the history of Europe’s monetary union.

Portugal, battling to counter a financial market perception
that its debt-control difficulties are second only to Greece’s,
announced a surprisingly strong GDP rise of 1.0 percent.

Total euro zone GDP contracted more than 4 percent last
year, far more than a dip in U.S. GDP of around 2.4 percent, and
the European Commission last week forecast a recovery which
would raise GDP just 0.9 percent in 2010 and 1.5 percent in
2011, compared to U.S. rises of 2.8 percent and 2.5 percent.

Investment Analysis

(Editing by Stephen Nisbet, John Stonestreet)

WRAPUP 4-Euro zone GDP shows frailty as more austerity looms