European economic growth accelerated more than economists forecast in the first three months of 2008 as stronger expansions in Germany and France masked slowdowns in Spain and Italy.
Gross domestic product in the euro area increased 0.7 percent from the previous three months, when it rose 0.4 percent, the European Union's statistics office in Luxembourg said today. The pace exceeded the 0.5 percent median of 32 estimates in a Bloomberg News survey and the 0.1 percent growth rate in the U.S.
Growth quickened to the fastest pace in 12 years in Germany and was higher than analysts expected in France, providing strength at the core of the euro-area economy as Spain suffered its weakest expansion in almost eight years. That justifies the decision of the European Central Bank to hold off cutting interest rates for now as it tries to conquer inflation.
``After the strong data in the first quarter there is definitely no room for the ECB to cut rates,'' said Joerg Kraemer, chief economist at Commerzbank AG in Frankfurt.
The ECB has signaled no rush to cut rates having kept its benchmark at a six-year high of 4 percent since June even as the U.S. Federal Reserve and Bank of England lowered borrowing costs. Figures published today showed euro-area inflation eased to 3.3 percent in April from a 16-year high of 3.6 percent in March, still well above the ECB's 2 percent ceiling.
Five Times
Germany's 1.5 percent growth was five times the pace of the prior quarter and signals that it so far has weathered the U.S.- led global slowdown as it benefits from demand in emerging markets and companies streamlining production following the 2001 slump. Hochtief AG, Germany's largest construction company, said today that first-quarter profit more than tripled.
Economists at Commerzbank revised up their forecast for growth in Germany to 2.4 percent this year from 1.8 percent, paving the way for Europe's largest economy to enjoy only its third soft-landing since 1960. Evidence suggests German growth in the first quarter was boosted by a milder-than-usual winter and has since slowed.
At the same time, Spain is mimicking the U.S. as a credit shortage exacerbates a housing slump, while forecasts from the International Monetary Fund show Italy faces the bleakest economic outlook of the entire continent. Grupo Ferrovial SA, the Spanish builder, yesterday said first-quarter profit slumped 83 percent as revenue at its construction arm faltered.
Greater Pinch
The divergence marks a difference from the last slowdown in 2001, which was driven by contractions in the French and German economies, which together account for almost half of the region's gross domestic product. They may not prove invulnerable for much longer as more recent data suggest Europe is feeling a greater pinch from a strong euro, tighter credit, record food and oil prices and slowing export orders.
Confidence in the euro region among executives and consumers declined to the lowest in two and a half years last month, while industrial production fell in March for the first time in four months. Paris-based Pernod Ricard SA, the world's second-largest liquor company, said revenue in the quarter through March was little changed as U.S. consumers cut spending and the dollar weakened.
``The euro-zone economy is already slowing down and the economic powerhouse, Germany, is about to follow,'' said Carsten Brzeski, an economist at ING Groep NV in Brussels. ``With a further deterioration of the economic outlook, we still expect the ECB to shift its focus from inflation towards low growth and cut interest rates in the second half of the year.''
`Only Gradually'
ECB President Jean-Claude Trichet said last week inflation will remain ``high'' for some time and moderate ``only gradually.''
Germany's first-quarter expansion was more than twice what economists had forecast and was led by companies stepping up spending on machinery and construction. In France, the economy grew 0.6 percent, double the prior quarter's growth and stronger than the 0.4 percent predicted by economists.
Spain's economy grew 0.3 percent from the previous three months, the slowest since the third quarter of 2000 and less than half the 0.8 percent pace of the previous three months. After home sales fell by a quarter in the year to February as mortgage costs rose, banks tightened credit for potential buyers and unemployment surged.
While Italy doesn't report GDP data until May 23, economists say it may already have slipped into a recession. The IMF predicted growth of just 0.3 percent this year compared with its 1.4 percent forecast for the euro area.
From a year earlier, the overall euro-area economy grew 2.2 percent in the first quarter, according to today's report. The figures are the first estimate and the statistics office didn't publish a breakdown of the data.
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