By Simone Meier May 12 (Bloomberg) -- Europe’s economy expanded at a faster pace than economists forecast in the first quarter as a global recovery boosted exports, helping the region overcome the Greek fiscal crisis and consumers’ reluctance to increase spending. Gross domestic product in the 16 euro nations rose 0.2 percent from the fourth quarter, when it remained unchanged, the European Union’s statistics office in Luxembourg said today. Economists had forecast growth of 0.1 percent, the median of 31 estimates in a Bloomberg survey showed. Industrial production gained 1.3 percent in March from February, when it rose 0.7 percent, a separate report showed. The euro-area economy may gather strength after European leaders earlier this week pledged a rescue package worth almost $1 trillion to counter a spreading Greek debt crisis and restore confidence. Concern about governments’ ability to tackle their deficits has pushed down the euro 11 percent against the dollar this year, helping bolster the region’s export-led recovery. “Evidence is that the recovery in the center of the euro region gathered pace in the second quarter,” said Jacques Cailloux, chief European economist at Royal Bank of Scotland Group Plc in London. “It’s quite clear that given the situation in the periphery, we’re not immune to a financial shock to the system. The euro-IMF package should help stabilize financial markets and protect the real economy.” The euro pared its gains against the dollar after the GDP data. The European currency traded at $1.2685 at 10:32 a.m. in London, up 0.2 percent on the day after reaching $1.2739 earlier. Greece, Spain, Portugal From the year-earlier quarter, euro-area GDP rose 0.5 percent after declining 2.2 percent in the fourth quarter, today’s report showed. In Germany, Europe’s largest economy, GDP rose 0.2 percent in the first quarter from the previous three months. French GDP rose 0.1 percent from the fourth quarter and the Italian economy expanded 0.5 percent. By contrast, the Greek economy contracted 0.8 percent from the fourth quarter, when it also shrank 0.8 percent, today’s report showed. In Spain, the economy expanded 0.1 percent in the first quarter and Portugal grew 1 percent. Ireland hasn’t released GDP data for the first quarter. Howard Archer, chief European economist at IHS Global Insight in London, said that, while growth probably “significantly improved” in the current quarter, a recovery may be “erratic” over the coming months. ‘Contagion Effects’ “The Greek debt crisis and contagion effects is increasing pressure for fiscal policy to be tightened earlier and faster in a number of countries with likely negative consequences for growth,” he said. “The euro region will therefore be fervently hoping that global growth and trade can pick up further over the coming months, boosting its own recovery prospects.” With the euro’s decline making European goods more competitive, companies have relied on exports to bolster earnings as households hold back spending. Europe’s services and manufacturing industries expanded at the fastest pace in almost three years in April and economic confidence improved. European industrial production increased 6.9 percent in March from a year earlier, today’s report showed. The International Monetary Fund on April 21 raised its global growth forecast for this year to 4.2 percent from 3.9 percent, citing a faster expansion in emerging economies including China. The euro region’s economy may grow 1 percent in 2009, the Washington-based IMF forecast. ‘Cautious’ Outlook ThyssenKrupp AG, Germany’s biggest steelmaker, returned to profit in the first quarter amid improved demand for the metal, the Dusseldorf-based company said today. Volkswagen AG, Europe’s largest carmaker, sees “light at the end of the tunnel” for the European automotive market, sales chief Christian Klingler said on April 29. European builders may help bolster an expansion in the current quarter after unusually cold temperatures in the previous three months hurt construction output. European Central Bank President Jean-Claude Trichet said on May 6 that while some recent economic indicators were “quite encouraging,” there’s reason to remain “prudent and cautious.” European policy makers on May 10 pledged 440 billion euros ($558 billion) in loans or guarantees for nations facing instability with the IMF adding 250 billion euros to counter a spreading sovereign-debt crisis. The ECB the same day said it will buy government and private bonds and offer banks as much cash as they need for terms of three and six months. Extra Yield The euro has since reversed some of its losses against the dollar and yields on Greek government bonds declined. The extra yield that investors demand to hold Greek, Portuguese and Spanish debt instead of benchmark German bonds last week surged to the highest since the euro’s 1999 introduction. “The risk that contagion might spiral out of control precipitating a systemic crisis has now been substantially reduced if not completely dissipated,” said Marco Annunziata, chief European economist at UniCredit Group in London. Still, “without a strengthening of the euro region’s fiscal discipline and of its growth potential, any euro strength will be short- lived.” The statistics office is scheduled to release a breakdown of first-quarter GDP next month. To contact the reporter on this story: Simone Meier in Dublin at smeier@bloombert.net

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