Europe delivers surprise growth
May 16, 2008
Dublin - European economic growth accelerated more than economists forecast in the first three months of this year as stronger expansions in Germany and France masked slowdowns in Spain and Italy.
Gross domestic product (GDP) in the euro zone increased 0.7 percent from the previous three months, when it rose 0.4 percent, the EU's statistics office said yesterday.
The pace exceeded the 0.5 percent median of 32 estimates in a news survey and the 0.1 percent growth rate in the US.
Growth quickened to the fastest pace in 12 years in Germany and was higher than analysts expected in France, providing strength at the core of the euro zone economy as Spain suffered its weakest expansion in almost eight years.
That justifies the decision of the European Central Bank (ECB) to hold off cutting interest rates for now as it tries to conquer inflation.
"After the strong data in the first quarter there is definitely no room for the ECB to cut rates," said Joerg Kraemer, the chief economist at Commerzbank in Frankfurt.
The ECB has signalled no rush to cut rates, having kept its benchmark at a six-year high of 4 percent since June, even as the US Federal Reserve and the Bank of England slimmed borrowing costs. Figures out yesterday showed euro zone inflation eased to 3.3 percent last month from a 16-year high of 3.6 percent in March, still above the ECB's 2 percent ceiling.
German growth of 1.5 percent was five times the pace of the prior quarter and signals that it so far has weathered the US-led global slowdown as it benefits from demand in emerging markets and companies streamlining production following the 2001 slump. Construction company Hochtief said yesterday that first-quarter profit had more than tripled.
Economists at Commerzbank revised their forecast for growth in Germany to 2.4 percent this year from 1.8 percent, paving the way for Europe's largest economy to enjoy only its third soft landing since 1960.
At the same time, Spain is mimicking the US as a credit shortage exacerbates a housing slump, while forecasts from the International Monetary Fund show Italy faces the bleakest economic outlook of the entire continent. Spanish builder Grupo Ferrovial yesterday said first-quarter profit slumped 83 percent as revenue at its construction arm faltered.
The divergence marks a difference from the last slowdown in 2001, driven by contractions in the French and German economies, which together account for almost half of the region's GDP.
They may not prove invulnerable for much longer, as more recent data suggest Europe is feeling a greater pinch from a strong euro, tighter credit, record food and oil prices and slowing export orders.
"The euro zone economy is already slowing down," said ING Groep economist Carsten Brzeski. "And the economic powerhouse, Germany, is about to follow.
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