Eurozone Growth Stronger than Expected


Eurozone economic growth halved in the final months of last year but still outpaced the US and pointed to a gradual, rather than dramatic, slowdown under way.

Gross domestic product in the 15-country region increased by a stronger-than-expected 0.4 per cent in the fourth quarter of 2007, according to Eurostat, the European Union’s statistical office, after a 0.8 per cent rise in the previous three months.

Growth was supported by surprisingly strong performances in the Netherlands and Spain, while Germany and France saw significant slowdowns.

The latest data suggested the effects of a stronger euro, higher interest rates and the knock-on effects of the global credit squeeze were taking their toll, and analysts warned that such factors would hit growth this year, especially if the US fell into recession.

That made a significant rebound unlikely in the first quarter – unlike after previous soft-patches. "Basically we are in for a sluggish, foggy patch," said Julian Callow, economist at Barclays Capital.

Still, economists reckon a eurozone recession is unlikely and growth in 2008 might be within reach of the long-term trend rate of about 2 per cent.

The figures helped explain the European Central Bank’s decision last week to tone down its hawkish rhetoric and open the door for possible interest rate cuts later this year. However, economists argued that with inflation at a 14-year high of 3.2 per cent, no early cut in eurozone borrowing costs was likely.


TradingEconomics.com, Financial Times
2/14/2008 6:33:43 AM