The euro zone economy rebounded more strongly than previously expected in the first quarter thanks to investment and inventories, data showed today, but economists said growth would slow sharply now.
Gross domestic product in the 15 countries using the euro rose 0.8 per cent quarter-on-quarter, the European Union's statistics office said, revising upwards its previous estimate of 0.7 per cent. It rose 2.2 per cent in annual terms, in line with the earlier estimate.
The biggest contribution to the first quarter result came from investment, which added 0.4 percentage points to the overall figure, while inventories added 0.2 percentage points.
Economists said the investment rise was fuelled by activity in the German construction sector which was boosted by a mild winter. German first quarter growth was the fastest in 12 years at 1.5 per cent.
Despite a record strong euro, net trade of the euro zone contributed 0.1 percentage point, as exports added 0.8 percentage points and imports subtracted 0.7 percentage points.
The robust first-quarter expansion prompted the International Monetary Fund to raise on Monday its forecast for euro zone growth in 2008 to 1.75 per cent from 1.4 per cent -- a forecast in line with that of the European Commission.
Economists also see the strong first quarter as one of the factors likely to keep European Central Bank interest rates on hold this year, especially after inflation revisited record highs of 3.6 per cent year-on-year in May.
But with surveys pointing to a sharp slowdown in economic activity in the second quarter, the ECB will not overestimate the importance of the first quarter, they said.
The bank meets on interest rates on Thursday amid strong market expectations that it would keep interest rates unchanged at 4 per cent.
The ECB wants consumer inflation to be just below 2 per cent but does not expect to reach that goal until late 2009 as soaring food and fuel prices push up the index.
Inflationary pressures were clearly visible in the rise of producer prices in April, which jumped by an expected 0.8 per cent month-on-month for a 6.1 per cent annual gain.
The rise was mainly driven by a 2 per cent monthly jump in energy costs, which rose 14.3 per cent year-on-year.
Prices at factory gates indicate inflationary pressures because unless absorbed by retailers and intermediaries via lower profit margins, they are passed on to consumers.
Without the more volatile prices of energy and construction, producer prices rose 3.7 per cent year-on-year, down from 3.8 per cent in March but up from 3.2 per cent at the end of 2007.