European Economic Expansion Cooled in Q4

European economic growth cooled in the last three months of 2007, as tighter credit conditions and the euro's gains began to weigh on the region's expansion., Bloomberg 4/9/2008 6:42:06 AM

Gross domestic product increased 0.4 percent from the previous three months, when it grew 0.7 percent, the European Union's statistics office in Luxembourg said today. Consumer spending, which accounts for almost 60 percent of the economy, fell for the first time in six years and government spending also declined.

The European Central Bank, which cut its economic-growth forecasts last month, will probably leave its key interest rate on hold at a meeting tomorrow of its governing council as concern that inflation is accelerating outweighs worries about economic growth. While the economy's pace of expansion has slowed, consumer-price growth has surged to near a 16-year high.

From a year earlier, the euro-area economy grew 2.2 percent, according to today's report. The figures are the second detailed breakdown of fourth-quarter GDP and overall growth matches a March 4 release.

Consumer spending in the euro area fell 0.1 percent in the fourth quarter, the first decline since 2001, after growing 0.5 percent in the previous three months. Government spending also slipped 0.1 percent. Export growth slowed to 0.6 percent, compared with an initially reported 0.5 percent, from a 2 percent increase in the prior three months.

The euro has risen more than 17 percent against the dollar and the pound in the past 12 months, making euro-area goods less competitive. The currency reached a record above $1.59 last month and rose to 80 pence per pound today for the first time.

At the same time, a U.S.-led global slowdown may crimp demand for European goods, while a global credit squeeze could limit companies' access to funding. The Frankfurt-based ECB forecasts that the euro-region economy will grow 1.7 percent this year, according to staff projections published March 6. It previously forecast expansion of 2 percent.

Data since the end of the fourth quarter indicate the slowdown may have intensified. Growth in the euro region's service and manufacturing industries has slowed, while executive and consumer confidence fell last month to the lowest in more than two years.

European Economic Expansion Cooled in Q4