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Euro zone seen growing at last: Thank Germany

Fireworks explode over the Brandenburg Gate in Berlin, Germany
Andreas Rentz | Getty Images
Fireworks explode over the Brandenburg Gate in Berlin, Germany

There might be cause for celebration in the euro zone next week, with analysts expecting official figures to show its economy grew for the first time since 2011 in the second quarter.

Economists surveyed by CNBC on average forecast an expansion of 0.2 percent in the region's quarterly gross domestic product (GDP). The official data, which will be released on Wednesday, comes after the pace of contraction slowed in the first quarter, to 0.2 percent quarter-on-quarter, boosting hopes of a return to growth. The last quarter-on-quarter expansion in euro zone GDP was in the third quarter of 2011.

Jonathan Loynes, chief European economist at Capital Economics, said he had penciled in quarterly growth of 0.2 percent in the second quarter, driven by a strengthening industrial sector.

"It's where we've seen clear evidence of an improvement," he said. "Industrial production figures have picked up quite strongly and could add around 0.2 percent to GDP in the second quarter."

(Read more: High hopes for Germany as 'roller coaster ride' nears end)

Nomura's senior European economist, Silvio Peruzzo, agreed that a revival in the manufacturing and industrial sectors was paving the way for a euro zone recovery.

"There is some good news in store for the euro zone next week," he told CNBC, forecasting quarterly growth of 0.2 percent. "It's a very challenging, but on balance there are some indications the recovery may be happening ahead of our expectations."

Euro zone GDP would also get a helping hand from an improvement in the core euro zone economies, Loynes added, with Germany in particular expected to post "solid growth".

Carsten Brzeski, senior economist at ING, agreed that the euro zone's GDP was "once again highly dependent" on Europe's largest economy.

Data released this week revealed that Germany's industrial output grew at its fastest pace in almost two years in June, and industrial orders in June posted their biggest rise since October.

(Read more: France is the biggest concern in Europe: Fed's Fisher)

Germany's economy minister said on Friday that its economy had grown "briskly" between April and June. "After the weather dampened growth in the first quarter, there was a growth spurt in the second quarter due to catch-up effects," it said in a statement, but stressed that expansion would likely slow over the rest of 2013.

Brzeski warned that exports and retail sales for the country had come in "rather flat."

"As a consequence, we expect the euro zone to leave the recession, posting a meager 0.1 percent quarter-on-quarter GDP growth next week - see this as a German present," he said. "Obviously, 0.1 percent growth is not a recovery but just the end of a too long economic misery."

Slow return to growth?

German GDP, also due on Wednesday, is expected to expand by 0.6 percent quarter-on-quarter, which Kathleen Brooks, research director at Forex.com, described as "far from outstanding."

It comes after improving growth figures from Italy and Spain, which showed that although the economies were contracting, it was at a slower pace than expected.

"It's worth remembering that these economies are still not growing - so in reality things are still bad, but the 'badness' is growing at a slower pace," Brooks added. She also expects euro zone GDP to grow by 0.2 percent on the quarter.

However Nomura's Peruzzo said the key test would be whether the return to growth could be sustained throughout this year and moving into next.

(Read more: Turning point or false hope: what next for Europe?)

"There are some uncertainties over the medium-term that remain," he said. "Such as the impact of fiscals consolidation and the cost of funding across the euro zone."

Capital Economics' Loynes highlighted more headwinds, including a high level of private sector debt in a number of peripheral countries, a lack of competitiveness and major structural constraints to growth in countries like Italy.

"Against this background, I don't think positive growth in the second quarter will mark the start of a strong and sustained recovery in region as a whole," he said. "It could certainly slip back. The few surveys we've had for August have so far pointed to further improvements – but these are quite volatile."

Forex.com's Brooks warned against getting too excited by growth in the second quarter, adding that it will be a "slow return to growth" for the currency bloc.

"Overall, the second quarter could show a pause in the downturn, but this does not suggest that the economy has turned a corner," she said.

By CNBC's Katrina Bishop. Follow her on Twitter @KatrinaBishop

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