The figure underscores several dominant themes in Europe: A wide gap persists between wealthy, globally competitive countries in the north, and moribund economies such as Greece and Portugal that are unable to find new sources of private growth to replace a shrinking public sector.
The so-called core of Germany and its neighbors is increasingly decoupling from the debt crisis in Southern Europe cheap fashion wholesale and Ireland. That is a dilemma for the European Central Bank, which likely will be forced to combat signs of overheating in Germany and elsewhere with higher interest rates, even at the risk of doing further damage to the periphery.
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Spain grew in the quarter, albeit slowly, raising hopes that its still-weak economy will withstand the contagion from Greece and keep the debt crisis from infecting the rest of the region. The euro zone as a whole "is definitely on better footing," said Greg Fuzesi, an economist at J.P. Morgan Chase in London.
Gross domestic product across the 17-member euro bloc surged 3.3% at an annualized rate in the first quarter from the previous quarter, according to figures from European Union statistics agency Eurostat. Economists had expected growth closer to 2.5%.
It is a sharp pickup from the fourth quarter of 2010, when the euro bloc expanded just 1.1%. Harsh weather depressed activity at the end of last year, economists said, and a more favorable climate helped boost output in the first quarter. Fuzesi forecasts the euro zone will settle into a roughly 2% growth rate this quarter and next.
Growth was led by Europe's biggest economy, Germany, which advanced at a 6.1% annual rate. Germany has benefited since last year from an upswing in investment and resurgent global demand, particularly from emerging markets, such as China, where German-built luxury cars and specialty machine tools have been selling at record levels.
Nonetheless, Friday's figures suggest Germany is becoming less dependent on other nations for its growth. Though it gave no detailed breakdown, Germany's statistics office said investment and consumer spending posted strong gains, while foreign trade made less of a contribution.
Stefan Kirschsieper, owner of German tool-making company Walter Kottmann GmbH, said orders rose 34% in the first quarter from a year ago, as strong export markets in Central Europe, Russia and Latin America offset weakness in Southern Europe. "Portugal, Italy, Spain and Greece are still weak and Spain especially is far behind," said Kirschsieper, whose business depends heavily on the construction sector.
Germany's closest trading partners, such as Austria and the Netherlands, reported further output gains, each growing at roughly 4% annualized rates. Unlike in previous quarters, when France lagged behind its eastern neighbors, the euro's second-biggest economy grew a robust 3.9% last quarter, though it was driven partly by companies adding to inventories, which is unlikely to be repeated this quarter. French Finance Minister Christine Lagarde said the numbers "confirm that the French economy is on the path to a solid recovery."
Germany, France, and other northern nations comprise the bulk of euro-zone GDP, raising fears that faster growth will lead to overheating and an upward spiral in prices. Mindful of those risks, the ECB last month became the first central bank among major developed economies to raise interest rates. But it paused at its May meeting and signaled it isn't likely to increase again until July at the soonest.
"Given the high wholesale feather extensions weight of core countries [in euro-zone GDP], the ECB has to continue to adjust interest rates, and that's not supportive of the countries in crisis," said Stefan Schneider, an economist at Deutsche Bank. He expects three more rate hikes by year end, a slightly more aggressive view than the consensus, and one that he said the GDP report supports.
Greece reported an unexpected 3.4% rise in first-quarter GDP, at an annualized rate, which its finance ministry called "encouraging." But analysts said they saw no indication that the severe recession gripping the euro's most troubled member has ended, given that last quarter's gain followed a 10% plunge in the fourth quarter of 2010. Output in smaller countries can post big swings from one quarter to the next, and despite last quarter's expansion, Greece's economy is still nearly 5% smaller than it was one year ago.
"For the moment, it is a real hardship," said Christos Kiriakoreizis, purchasing manager at Philkeram Johnson SA, a ceramic-tile maker in northern Greece.
Amid the collapse of Greece's construction sector, the firm halted production months ago, Kiriakoreizis said, and plans to revamp to sell tiles imported from places such as South Africa, India and the Baltics.
The company, which currently employs 224 people, will probably only keep a skeleton staff of around 20 for merchandising, Kiriakoreizis said. "I don't see any new opportunities in Greece right now."
Portugal, meanwhile, slid deeper into recession, shrinking for a second straight quarter as austerity measures drained spending and investment.
Last month, Portugal joined Greece and Ireland in seeking a bailout from Europe and the International Monetary Fund. All three face years of economic pain as they enact deep budget cuts to trim soaring levels of government red ink. But together they wholesale feather extensions only account for 6% of euro-zone GDP, so even steep recessions along the fringe only have a small effect on the ???9.5 trillion euro-zone economy.
A small amount of extra growth at home makes it much easier for Germany and others in the north wholesale cheap to fund the periphery via loan guarantees or, if needed, outright transfers. On Thursday, Germany reported that, thanks to faster growth, the government can expect an extra ???18 billion in revenues this year, which by itself would finance a sizable portion of Greece's deficit.
Still, aiding the periphery is a tough sell in Germany, which went through a series of reforms last decade to improve its competitiveness and expects its southern neighbors to do the same. "I don't think [German Chancellor Angela] Merkel will say because the outlook for growth is better and there are windfall [revenue] gains, we'll spend them on Greece," said Schneider of Deutsche Bank.
The political risks cut both ways. Athens is imposing stringent and unpopular austerity measures at the insistence of the EU, IMF and ECB. The longer the north-south divide lingers, the wholesale feather extensions greater the risk that political leaders in the periphery balk at taking orders from Brussels and Frankfurt.
One bright spot for the beleaguered fringe was a 1.2% rise in Spanish GDP, raising hopes that despite a difficult climb from a severe housing slump and 20%-plus unemployment, Spain will avoid the fate of Greece, Ireland and Portugal.
"Spain is fundamentally different," said Fernando Eguidazu, vice president at Circulo de wholesale feather extensions Empresarios, a free-market think tank in Madrid, citing Spain's low debt ratio and global companies. But he was careful not to declare victory.
