German GDP drops, France edges up, periphery deep in gloom

BERLIN/PARIS (Reuters) - Germany's economy contracted slightly in the last three months of the year while France eked out an anemic level of growth, suggesting the euro zone may succumb to a mild recession with its high debtors still deep in the mire.

German gross domestic product contracted 0.2 percent in the fourth quarter, a slowdown from upwardly revised 0.6 percent growth in the July-September period, data showed on Wednesday.

France fared better, growing by a stronger-than-expected 0.2 percent in the fourth quarter from the previous three months as corporate investment picked up and domestic consumption remain solid, bringing growth for the year to 1.7 percent in line with the government's forecast.

Figures for the whole euro zone are due at 1000 GMT and forecast to show its economy slipped by 0.3 percent quarter-on-quarter.

Germany's figures were a little better than forecast and more forward-looking survey evidence suggests its downturn, at least, will be short-lived.

The ZEW think tank's monthly poll of economic sentiment jumped for the third month in a row on Tuesday, to its highest level since April 2011, reinforcing signs that Europe's largest economy is returning to growth.

"We expect the German economy to move roughly sideways in the first half of this year, before gaining momentum from around the middle of the year, when European policymakers should have implemented the final measures to contain the sovereign debt crisis while the global economy picks up," said Aline Schuiling at ABN AMRO.

France's economy also beat expectations that it would shrink by 0.1 percent.

"Each of the three main components of the economy - foreign trade, household consumption and investment - had a positive contribution in the last quarter of 2011," Finance Minister Francois Baroin said in a statement. "This strengthens the government's forecast for 0.5 percent (growth) this year."

Late last year, European Central Bank President Mario Draghi forecast a "mild recession" for the currency bloc. His latest assessment, given at a news conference following a monetary policy meeting last week was that there was evidence of "a stabilization of economic activity at a low level."

Finland posted quarterly growth of 0.7 percent.

PERIPHERAL MISERY

Even if the euro zone as a whole avoids recession, for its members at the epicenter of the debt crisis, there is no chink of light.

With wrangling over a second Greek bailout still unresolved, data on Tuesday showed Greece's economy shrank by a stunning 7 percent year-on-year in the fourth quarter, much worse than a Q3 decline of 5 percent and the austerity measures demanded by its lenders are likely to make things even worse for some time.

The latest figures also make it that much harder to reach its debt targets, calling into question the wisdom of cutting so deeply.

Euro zone finance ministers have dropped plans for a special face-to-face meeting on Wednesday on Greece's new international bailout, saying political party chiefs in Athens had failed to provide the required commitment to reform.

Portugal, which many analysts expect to require bailing out for a second time too, suffered a 1.3 percent quarterly contraction in GDP, more than double the previous quarter's 0.6 fall.

Argentina suffered a 20 percent peak-to-trough drop in output as it defaulted on its debts in 2001, while Latvia's economy contracted by 24 percent because of the 2008 global financial crisis. With more belt-tightening in store in return for a proposed 130 billion euro international bailout, Athens is on course to emulate them.

(Writing by Mike Peacock.Editing by Jeremy Gaunt.)

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