A spectacular leap in Germany's growth fuelled a sharp acceleration in the eurozone economy in the first quarter, despite the credit crisis, but failed to quell fears that Europe will soon succumb to the global downturn.

Jean-Claude Trichet, the President of the European Central Bank, yesterday led warnings from leading policymakers and officials that the eurozone's powerful first-quarter performance will almost certainly have seen its growth peak, and that it now faces a marked slowdown in the rest of the year.

The cautionary message from Mr Trichet was reinforced by Dominique Strauss-Kahn, the French managing director of the International Monetary Fund, who said in Brussels that the worst of the worldwide financial crisis may now be over, but that its toll of leading economies was set to persist for months.

Despite those admonitions, the strong economic showing of both France and Germany, as well as the wider eurozone, was seized on by their leaders as evidence that Europe is weathering the global financial turmoil far better than the United States and is proving more resilient than many observers expected.

A surge in corporate investment in the eurozone's two dominant economies was the main factor behind both Germany and France gathering steam in the first quarter (Q1). In Germany, Europe's biggest economy, business investment spending climbed fivefold from levels at the end of last year.

Economists hailed Germany's performance as its economy leapt ahead, with GDP growth more than doubling from last year's final quarter to a 12-year high of 1.5 per cent, twice the pace that analysts had predicted.

Growth in France also doubled, to 0.6 per cent in Q1, from 0.3 per cent in the previous three months, driven by a stronger export performance, as well as its own booming levels of business investment.

The twin boosts to the eurozone economy as a whole from its two biggest members allowed the 15-nation bloc to bask in a steep rise in its overall growth rate to 0.7 per cent in Q1, from a more lacklustre 0.4 per cent in the previous quarter.

However, economists gave warning of economic vulnerabilities in Germany, France and the wider eurozone that meant it was likely to have already seen its best performance for a year, and perhaps longer.

Behind upbeat data yesterday were worrying signs of consumer demand across the eurozone being sapped by the soaring cost of living, triggered by rising food and energy costs. Household spending stagnated in France in Q1 and stayed subdued in Germany.

Eurozone inflation remains at historically high levels. Although official figures yesterday showed the bloc's annual inflation rate falling to 3.3per cent last month, from 3.6 per cent in March, this remains far above the European Central Bank's target of “close to, but below” 2 per cent.

Mr Trichet reinforced the ECB's hawkish message that persistently high price pressures leave little or no room for cuts in interest rates.

Worries over whether Germany will be able to sustain its potent start to the year, or will now falter badly were reinforced as its exports, the mainstay of its economy, failed to make any contribution to its buoyant first quarter.

Fears that the credit crunch will now undercut Germany's growth were heightened by Bafin, the country's financial regulator, as it said that the impact of the crisis could worsen in coming months. “There is the danger that the financial crisis gets worse and still hits the real economy harder than expected,” Bafin said in its annual report.

Mr Trichet described the credit crunch conditions as a “quagmire” and argued: “The challenge lies in preventing the system from feeding on itself through a spiralling process of (de)leveraging.”

Mr Strauss-Kahn said that although “the worst news is behind us” on the financial crisis, “the main problem is the linkages between the financial crisis and the real economy and this is not behind us”.

Mr Trichet said that while yesterday's figures had “vindicated” the ECB view that the eurozone would prove resilient, he still expected that “we will see some kind of slowing down”.

In yesterday's data, Portugal's economy shrank 0.2 per cent. Spain's growth was 0.3 per cent, its weakest since 1993.

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