BRUSSELS, Oct 11: Euro zone growth turned out better than expected in the first quarter, making the second-quarter slowdown more pronounced, revised data showed on Thursday.
But the European Commission forecast a third-quarter rebound, albeit weaker than projected before, and saw quarterly growth steady at around potential in the following two quarters.
The European Union’s statistics office said economic growth in the 13 countries using the euro was 0.8 per cent quarter-on-quarter in the January-March period, the same as in the bumper fourth quarter of 2006, revising the figure up from 0.7 per cent.
Second-quarter quarterly growth, however, was confirmed at only 0.3 percent, caused by a drop in inventories and flat investment and government spending.
The slower growth, a global credit crunch that is undermining confidence and boosting market credit costs, as well as the strong euro are likely to stop the European Central Bank from raising interest rates further, economists said.
“We believe that the ECB will not raise interest rates any higher from their current level of 4.0 per cent, particularly given the strength of the euro,” said Howard Archer, economist at Global Insight.
A slower second quarter was one of the main reasons why the European Commission lowered its 2007 growth forecast for the currency area to 2.5 per cent from 2.6 per cent in September.
In its latest projection of quarterly growth in the euro zone, the Commission said it expected a third-quarter expansion in a range of 0.3-0.7 per cent against its 0.3-0.8 per cent forecast made on Sept 4.
“Euro zone growth is likely to have rebounded significantly in the third quarter. Investment probably picked up markedly after its second-quarter relapse, while industrial production appears to have been stronger,” Archer said.
For the fourth quarter, the Commission sees growth in the range of 0.3-0.7 per cent against the previous projection of 0.2-0.8 per cent, which gives the same mid-point of 0.5 per cent.
For the first quarter of 2008, the Commission said growth would be in the range of 0.3-0.8 per cent against the previous forecast of 0.2-0.9 per cent, leaving the mid-point unchanged at 0.55 per cent.—Reuters