October 20, 2007	Saturday	Shawwal 7, 1428

LONDON/BERLIN, Oct 19: Europe got a surprisingly positive foretaste of third-quarter economic output when Britain published healthy gross domestic product figures on Friday for the period when the global credit crunch struck.

Germany, Europe’s largest economy ahead of Britain, did its bit to counter doubters too, saying growth there seemed to have re-accelerated in the three months to end-September, despite the turbulence on financial markets since early August.

That followed news just over a week ago of strong increases in industry output during August in Germany, France and Italy, three economies accounting for roughly 70 per cent of the total economy of the 13-country euro currency bloc.

Britain, a major trading partner of the euro zone though not a member, was first in the region to issue an official estimate of third-quarter growth -- a forecast-beating 0.8 per cent rise in GDP from second-quarter levels.

That was just as strong as the second quarter performance.

“UK growth is shrugging off the tightening cycle, the credit crunch and worries about a slower housing market ahead, for now at least,” said David Brown, an economist at Bear Stearns bank.

Brown nevertheless argued that the economy was sure to lose steam because of a strong currency, weaker business and consumer confidence and a sharper downturn in the housing market.

“The key is whether domestic demand can weather the storm going into 2008,” he said.

In Germany, the finance ministry said it had seen no clear sign of damage to economic output from financial market woes.

“The available economic indicators suggest that the upswing remains intact,” it said in a monthly report. “The financial market turbulence has not yet appreciably burdened real economic activity.” The government’s forecast for economic growth of 2.3 per cent for this year looked secure, and the third quarter appeared to have been better than the second- when growth in Germany and the euro zone more widely fell to 0.3 per cent.

The first official readout on third-quarter GDP for Germany and the euro zone more broadly is scheduled for Nov. 13.

As with Britain, the worry remains about what happens now, even if nothing too negative materialised in the third quarter as a result of the abrupt deterioration in financial markets.

The German ministry’s report acknowledged that the euro’s exchange rate -- it hit a record high versus the dollar on Friday -- posed a threat for the world’s biggest exporting nation.

“A further weakening of the US economy, the euro’s strength versus the dollar, as well as the turbulence on capital markets and the possible negative effects from that on global growth, could dampen the vitality of exports,” it said.

A strong euro makes German exporters’ goods more expensive outside the euro zone. The euro has appreciated around 10 per cent in just the last 12 months.

—Reuters