France Slides Into Recession, Germany Disappoints

Why Playing Euro Zone’s Second Fiddle May Suit France
George Kavanagh | Stone | Getty Images

France slipped into recession in the first quarter of 2013, figures showed on Wednesday, while data from Germany highlighted that the country is not immune to the economic crisis crippling the broader euro zone.

France's economy contracted 0.4 percent year-on-year in the first quarter, while gross domestic product shrunk 0.2 percent quarter-on-quarter. The drop comes after a 0.2 percent contraction in the final quarter of 2012.

Germany, meanwhile, fell short of expectations and grew by 0.1 percent in the first quarter. It showed a 0.2 percent decline in growth year-on-year. A revision to the fourth quarter figure added to disappointment; the figure for the final three months of 2012 was revised downwards from a contraction of 0.6 percent to a contraction of 0.7 percent.

France's economy is suffering from record unemployment and waning business and consumer confidence, while Germany's disappointing numbers were attributed to bad weather.

"The harsh winter weather did not only affect the construction sector but indirectly also other sectors," Carsten Brzeski, senior economist at ING said in a note to clients.

On Tuesday, France's finance minister Pierre Moscovici told CNBC that he and the French people "refuse" austerity. Germany on the other hand, has warned its euro zone neighbors to not ease up on reforms and belt-tightening in order to keep budget deficits within EU limits.

The chief executive of mail and freight company Deutsche Post, Frank Appel, told CNBC that the numbers for Germany were to be expected.

"I think nobody expected very strong growth for the first quarter anyway, the revision happens on a regular basis and Germany can't disconnect from the world either."

Philip Tyson, rates strategist at the world's largest interdealer broker ICAP, echoed those views, telling CNBC Europe's "Squawk Box that "Germany can't survive on its own and there are still many structural problems there."

However, according to senior consultant at Credit Suisse, Bob Parker, the German economy would pick up in the rest of the year.

"For the second quarter I think we're going to see a much better number out of Germany and I think that number we could easily see annualized growth in the second half of 2013 of 1.5 percent," Parker told CNBC.

Political Pressures

The disappointing figures for France could heap pressure onto Moscovici amid rumors President Francois Hollande may reshuffle his cabinet. Foreign minister Laurent Fabius criticized the finance ministry, and implicitly Moscovici, on Tuesday by saying that it needed a "boss."

Hollande is under pressure to boost the economy as he languishes in the polls. His Socialist cabinet has been accused of being slow to pursue structural and labor reforms. The president of the Eurogroup of euro zone finance ministers, Jeroen Dijsselbloem, last weekend warned France to stick to – and "accelerate" - its reform program and the President of the European Commission Jose Manuel Barroso on Tuesday added his voice to the discussion, saying France needed to present a credible program of structural reforms.

That emphasis on fiscal reforms - championed by German Chancellor Angela Merkel - is unlikely to diminish.

With forthcoming elections in September, Merkel is all too aware that the German public feels strongly that a prudent Germany has had to bailout profligate southern European economies during the euro zone crisis.

And with Germany's jobless rate close to a thirty-year low of 6.9 percent in April and the number in France at a record high of 10.6 percent, Merkel may have some room to take the high ground on policy direction to tackle the euro zone crisis.

-By CNBC's Holly Ellyatt, follow her on Twitter @HollyEllyatt