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Euro Zone Economies Show Wide Growth Gap

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Germany and France boosted euro zone growth considerably more than expected during Q1, while poorer nations in the 17-country group fared far less well.

Reuters reported that figures released Friday revealed that the euro zone itself experienced growth of 0.8% during the first quarter of 2011, above economist estimates of 0.6% and driven by Germany’s surprising GDP increase of 1.5%. France was close behind, its economy growing by 1.0%, although poorer countries in the group contributed little to that news. Together the two prosperous nations accounted for almost half of the euro zone’s GDP.

Howard Archer, economist at IHS Global Insight, was quoted in the report saying, "This is almost certainly as good as it gets for the euro zone and growth seems likely to moderate over the coming months. Nevertheless, there now looks a very decent chance that euro zone GDP growth will reach 2.0 percent in 2011 for the first time since 2007." In a separate report from the European Commission (EC), the euro zone was predicted to grow 1.6% by the end of the year, albeit with inflation considerably higher than the European Central Bank’s (ECB) target of 2%.

Germany is positioned to keep thriving, with Wolfgang Franz, a top economic advisor, saying to German TV channel ARD that the country could add another 3% in 2011. France, on the other hand, will probably not do so well as government cuts are poised to kick in.

Joost Beaumont, economist at ABN-AMRO, said in the report, "This is likely as good as it gets. The recent surge in oil prices is likely to erode household purchasing power, while also eating into company profits, leaving its mark on consumption and investment. Furthermore, we expect fiscal retrenchment to increasingly come to the fore."

Italy grew, although not by much; it added only 0.1% in the first quarter, with its government predicting growth of only 1.1% in 2011. Greece, surprisingly enough, added 0.8%, although that followed a quarter with a devastating contraction of 2.8% and is unlikely to be followed by more growth with all the demands for additional austerity measures by officials at the International Monetary Fund (IMF)/European Union (EU) in exchange for more aid.

Portugal’s economy shrank by 0.7%, a trend that is likely to continue in this year and next, according to its government.