Growth across EU creeps up to 0.8 per cent

The eurozone and the wider EU grew by 0.8 per cent in the first quarter of 2011, faster than the expected 0.6 per cent rise, Eurostat has estimated.

It compares with growth in the fourth quarter of 2010 of 0.3 per cent in the eurozone and 0.2 per cent in the EU as a whole.

Of the countries for which figures were available, Lithuania achieved the fastest growth, of 3.5 per cent. Estonia grew by 2.1 per cent and Germany maintained its strong performance with growth of 1.5 per cent.

The only country where GDP fell back in the first quarter was Portugal, which suffered negative growth of 0.7 per cent. It has recently negotiated a €78bn EU and IMF bailout. Greece managed growth of 0.8 per cent.

Compared with the equivalent first quarter of 2010, GDP across both the eurozone and the EU27 grew by 2.5 per cent. On the annual figures, Estonia came out on top, with growth of 8 per cent. Lithuania achieved growth of 6.8 per cent and Finland 5.2 per cent. The Greek economy contracted 4.8 per cent and the Portuguese economy 0.7 per cent over the year.

Marie Diron, senior economic adviser to the Ernst & Young Eurozone Forecast, said: "The strong eurozone performance was powered by Germany which saw growth of 1.5 per cent in the quarter, well above market forecasts.

"Compared to a year ago German GDP grew by around 5 per cent, a stellar performance that means the economy has now surpassed its pre-crisis levels of early 2008."

She said there was evidence of strengthening business confidence in the main European economies in the form of rising investment. But the periphery economies' performance was "less impressive," she said, apart from the positive performance of Greece. "These outcomes underline the problem of a two-speed Europe and the continuing debt risks in the weaker countries."

Reacting to the figures, Howard Archer of IHS Global Insight said: "This is almost certainly as good as it gets for the eurozone and growth seems likely to moderate over the coming months in face of significant headwinds.

"Nevertheless there now looks a very decent chance that eurozone GDP growth will reach 2 per cent in 2011 for the first time since 2007." The UK's first quarter growth of 0.5 per cent now looked "even more paltry" in comparison to the eurozone's performance, Archer said.

The EU's own forecasts suggest growth in 2011 of 1.75 per cent reaching nearly 2 per cent in 2012. But it expects inflation to continue to rise more quickly reflecting commodity prices - reaching 3 per cent across the EU this year before falling to 2 per cent next year.

Unemployment is expected to fall by 0.5 per cent to just over 9 per cent in the EU27 by 2012. The public deficit is set to decline to 3.75 per cent of GDP.

Commissioner for Economic and Monetary Affairs Olli Rehn said: "The main message in our forecast is that the economic recovery in Europe is solid and continues, despite recent external turbulence and tensions in the sovereign debt market.

"Public deficits are clearly declining. It is now essential to strengthen these trends of growth and consolidation and also ensure that they translate into more and better jobs. This calls for continued fiscal consolidation and determined implementation of structural reforms that help job creation and improve the competitiveness of our economies."