European Growth Heats Up

First quarter Euro area growth came in at a slow, but faster than expected, 0.2% compared to the previous quarter (or 0.8% using the American way of expressing growth) and 0.5% compared to the Q1 2009. Particularly Germany and Italy came in stronger than expected, something which was partially counteracted by a weaker than expected French number.

First quarter growth in Germany and other Northern European countries were depressed by the weather factor, something which will not be a factor during the second quarter. The disruption to air traffic following the Icelandic volcano ash cloud will however be a factor depressing growth, but the impact will probably be smaller than the effects of the cold snap.

Judging by the industrial production and manufacturing orders numbers released, growth will indeed almost certainly be higher in the second quarter, despite the turmoil in certain bond markets.

Among EU countries for which numbers are available, Slovakia had the strongest yearly growth rate at 4.6% while Latvia had the weakest number at -5.1%. Among euro area countries, Greece was weakest with a 2.3% contraction. And unlike Latvia which saw a small quarterly gain, Greece saw its GDP shrink compared to the previous quarter too. This was likely in part a result of the disruptive strikes organized by the Marxist unions, a factor which will depress second quarter growth too.

By contrast, the other crisis struck countries (Spain, Portugal and Italy) had positive quarterly growth rates and two of them (Portugal and Italy) had positive yearly growth too.