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Last Updated: Thursday, 13 May, 2004, 09:56 GMT 10:56 UK
Exports rise helps German economy
Hamburg, Germany
German consumers are still not spending
Germany's economy grew by a higher-than-expected 0.4% in the first quarter of the year, helped by rising demand for German goods abroad, officials say.

Economy Minister Wolfgang Clement said the figures show the country's economic recovery is underway.

GDP in the eurozone's largest economy had contracted by 0.1% in 2003.

Meanwhile, Italian officials said on Thursday, the country's economy grew 0.4% in the first quarter, which exceeded forecasts of a 0.1% rise.

Eurozone recovery?

French officials had announced on Wednesday that France's economy expanded by a stronger-than-expected 0.8% in the first quarter.

The data led analysts to wonder whether a recovery in the eurozone is underway.

"The question is whether it's a generic improvement or a one-off," said Stephane Deo of UBS.

France 0.8%
Belgium 0.6%
Spain 0.6%
Germany 0.4%
Italy 0.4%
Netherlands 0.4%
"The fact that labour markets are not recovering in Europe and industrial production is disappointing, especially in Italy, suggests it is a one-off."

But the European Central Bank said the figures confirm its prediction of a speeding up of economic recovery in the eurozone.

The recent data had "been more encouraging," the Bank said in its May report.

Consumer demand

In Germany, however, there were worries over domestic demand which has shrunk once again during the three-month period.

We see second quarter growth outpacing the first quarter because private consumption and investment should catch up
Gerd Hassel, Ing-Bhf bank
"With growth driven solely by exports, it's not healthy growth," said HypoVereinsbank economist Andreas Rees.

But some analysts expect consumer spending to increase over the year.

"We see second quarter growth outpacing the first quarter because private consumption and investment should catch up," said Gerd Hassel analyst at Ing-Bhf bank.

The Bundesbank estimated much slower growth of 0.25% for the first quarter.

Given the strength of the euro against the dollar, few had expected exports to do so well.

The government has also had to contend with a budget deficit - a result of slow growth - and a drop in tax revenues.

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