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Markets Take 'Glass Half Full' View of Weak European GDP

Hannelore Foerster | Getty Images

European shares were trading higher on Wednesday afternoon despite France's fall into recession, the euro zone's sixth consecutive quarter of recession and Germany's worse- than-forecast growth figure, with analysts seeing the data as a "glass half full" scenario for markets.

Major indices across Europe were little changed following the GDP figures, with the French CAC, the German DAX and the pan-European FTSEurofirst 300 Index all higher in afternoon trade.

While the weaker-than-expected gross domestic product figures for Europe's two biggest economies were worrying, Ishaq Siddiqi, ETX market strategist doubted the figures were enough to trigger a correction. Stock markets have seen strong gains in the past month, helped by the European Central Bank's interest rate cut and boosted by hopes that the economy is gradually improving.

(Read More: France Slides Into Recession, Germany Disappoints)

"Despite some positive data signals from the euro zone, such as industrial output released in the prior session, markets have this morning had a reminder that troubles in the euro zone are far from over.

"Austerity measures are biting and policy measures have not been enough to kick-start growth. Traders now will speculate over additional measures the ECB could possibly employ, be it more rate cuts, negative deposit rates or buying ABS. It's unlikely the poor euro zone GDP figures will be enough to trigger a correction alone as data from the U.S. so far appears to be reassuring investors worried about the Federal Reserve tapering off stimulus," he said.

Carsten Brzeski, senior economist at ING said the German number showed a bumpy first quarter but was fairly upbeat on the economy's prospects. "Looking ahead, prospects for the German economy are further clearing up. The industry is gaining pace as order books have started to fill again and companies are cautiously stepping up their investment plans. Moreover, domestic demand with the solid labor market and wage increases have become a reliable growth driver."

(Read More: Germany in 'Stagnation', Top Merkel Advisor Warns)

Azad Zangana,Schroders European economist is hopeful that Germany will outperform and France will exit recession later this year.

"Looking ahead, we expect activity to continue to gradually improve through this year, although member states that are forced to carry out tough fiscal consolidation will lag behind those that do not," he said.

"Specifically, we forecast Germany, Finland and Austria to outperform the rest,aided by the recent weakness in the euro, the improvement in external demand, and even lower interest rates thanks to the European Central Bank. Meanwhile, we expect France to exit its recession later this year, while Spain, Italy and Portugal are all unlikely to return to sustainable growth before 2015," he added.

Daragh Maher, FX strategist at HSBC said it was a glass half full, half empty scenario for the euro dollar, which hit a six week low following the German GDP data.

(Read More: Le Big Debate: France Triple-Dip or Not?)

"If anyone was going to deliver – it was Germany and it didn't, but we have tipped back to glass half full/glass half empty – it's negative, but it's less negative than Q4 last year, however I'm not sure that is enough to help the euro this morning," he said.

Frank Appel, CEO of Deutsche Post DHL said Germany's figures are only a marginal change to what was expected and it is not a surprise to see the nation struggle for growth.

"Nobody expected very strong growth for the first quarter, these are marginal changes to what has been forecasted, the revision is what happens on a regular basis," he said, referring to a downward revision of German fourth-quarter GDP, also announced on Wednesday.

"Germany can't disconnect from the world, the world is not in great shape and therefore it's not a surprise that it doesn't have strong growth," he added.

By CNBC's Jenny Cosgrave;.Follow her on Twitter @jenny_cosgrave.

Contact Europe: Economy

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