By Annika Breidthardt and Ingrid Melander
BERLIN/PARIS (Reuters) - Germany posted strong growth in the first quarter of the year and the contrast with France could not have been starker: the euro zone's second largest economy failed to expand at all.
German quarterly growth of 0.8 percent marginally exceeded forecasts and was double the pace at the end of 2013. France was expected to pale in comparison but had still been forecast to expand by 0.2 percent.
Inventory changes and public spending were the only factors which kept the French economy from contracting while Germany's performance was driven largely by domestic demand.
The figure for the euro zone as a whole is due at 0900 GMT (10.00 a.m. BST) and forecast to show growth of 0.4 percent on the quarter.
France will now need 0.5 percent growth each quarter to meet a government forecast for subdued 1 percent growth in 2014, Natixis Asset Management chief economist Philippe Waechter estimated.
Berlin has said it expects domestic demand to drive growth of 1.8 percent this year.
"Positive impulses came ... exclusively from within the country," the German Statistics Office said in a statement. "By contrast, foreign trade put the brakes on economic growth."
To compound France’s problems a public sector strike has been called by the hardline FO labour union over civil service pay freezes - a reminder of the difficulties of enacting economic reform.
The silver lining is the absence of pressure from the markets with borrowing costs for many euro zone countries at record lows. France will auction up to 9.5 billion euros of bonds later.
With recovery from years of economic crisis slow to materialise and prices barely rising - euro zone inflation was just 0.7 percent in April - the European Central Bank appears to be preparing to loosen policy at its June meeting.
A number of sources told Reuters that the ECB was working on a package of options, including cuts in all its interest rates and targeted measures aimed at boosting lending to small- and mid-sized firms.
DON'T BLAME THE EURO
The ECB has flagged a strong euro as one of its concerns, given the downward pressure it puts on import prices and exports.
President Francois Hollande's government wants euro zone governments to take action on the currency and has called for negotiations to weaken it after EU parliament elections next week.
The head of France's Medef national employers association said on Tuesday that Paris should not use its call for a weaker euro as a substitute for much-needed reforms.
Other euro zone countries which have taken strong medicine to improve competitiveness are starting to see the benefits.
Spain reported first quarter GDP growth of 0.4 percent two weeks ago, giving a year-on-year expansion of 0.6 percent, the strongest in three years. In response, the Spanish government upped its 2014 growth forecast to 1.2 percent from a previous 0.7.
Spain will need its economy to grow at a strong rate over the coming years to bring down an unemployment rate still running at about 25 percent.
Other high debtors such as Portugal and Italy are forecast to post some growth when they report later.
In global terms, much depends on China but there are positive signs elsewhere.
Japan clocked its fastest pace of growth in more than two years in the first quarter, raising hopes the economy will have enough momentum to tide over an expected slump following an April 1 sales tax hike.
And the United States is expected to bounce back from a weather-ravaged start to the year.
Hollande's government hopes to revive companies' competitiveness with plans to phase out 30 billion euros (24.45 billion pounds) in payroll tax over the next three years in exchange for commitments to boost hiring and investment.
(Writing by Mike Peacock; Editing by Toby Chopra)