Europe's Economic Expansion Exceeds Earlier Estimate

Economic growth in Europe was faster than previously estimated in the third quarter, as accelerating investment and exports gave the economy some momentum before higher credit costs threatened to curb the pace of expansion., Bloomberg 1/9/2008 7:52:18 AM

The euro-area economy expanded 0.8 percent from the second quarter, when it grew 0.3 percent, the European Union's statistics office in Luxembourg said today. The third-quarter growth is faster than an earlier estimate of 0.7 percent.

Oil prices and the euro reached record levels since the end of the third quarter, raising expenses for companies and making European exports less competitive. At the same time, credit costs soared, which may limit company investment, as bank losses linked to the collapse of the U.S. subprime-mortgage market made institutions reluctant to lend to each other.

Expansion in Europe's services and manufacturing industries is slowing, according to reports this month, while confidence fell to the lowest in almost two years in December. Figures published today showed German exports unexpectedly declined in November by 0.5 percent.

The euro has risen 13 percent against the dollar in the last 12 months, making European goods less competitive abroad, while crude-oil prices have soared 73 percent.

The European Central Bank last month cut its growth forecast for the euro area this year to around 2 percent from 2.3 percent. In 2009, the economy may expand 2.1 percent, the bank said, citing staff projections.

The ECB will probably keep its main lending rate at 4 percent tomorrow, according to all 44 economists in a Bloomberg survey. It has left the rate unchanged since June.

Global economic growth may slow for a second straight year in 2008, the World Bank said today in an annual forecast. The world economy will grow 3.3 percent this year, down from an estimated 3.6 percent in 2007 and 3.9 percent in 2006, it said. It sees the euro region expanding 2.1 percent.

From a year earlier, the economy expanded 2.7 percent, compared with 2.5 percent in the previous three months.