Euro zone to see third quarter rebound

Euro zone growth turned out better than expected in the first quarter, making the second-quarter slowdown more pronounced, revised…

Euro zone growth turned out better than expected in the first quarter, making the second-quarter slowdown more pronounced, revised data showed today.

But the European Commission forecast a third-quarter rebound, albeit weaker than projected before, and saw quarterly growth steady at around potential in the following two quarters.

The European Union's statistics office said economic growth in the 13 countries using the euro was 0.8 per cent quarter-on- quarter in the January-March period, the same as in the bumper fourth quarter of 2006, revising the figure up from 0.7 per cent.

Second-quarter quarterly growth, however, was confirmed at only 0.3 per cent, caused by a drop in inventories and flat investment and government spending.

READ MORE

The slower growth, a global credit crunch that is undermining confidence and boosting market credit costs, as well as the strong euro are likely to stop the European Central Bank from raising interest rates further, economists said.

A slower second quarter was one of the main reasons why the European Commission lowered its 2007 growth forecast for the currency area to 2.5 percent from 2.6 percent in September.

In its latest projection of quarterly growth in the euro zone, the Commission said it expected a third-quarter expansion in a range of 0.3-0.7 percent against its 0.3-0.8 percent forecast made last month.

For the fourth quarter, the Commission sees growth in the range of 0.3-0.7 per cent against the previous projection of 0.2-0.8 per cent, which gives the same mid-point of 0.5 per cent.

For the first quarter of 2008, the Commission said growth would be in the range of 0.3-0.8 per cent against the previous forecast of 0.2-0.9 per cent, leaving the mid-point unchanged at 0.55 per cent.

In year-on-year terms, the euro zone economy expanded at a rate of 2.5 percent in the second quarter, down from 3.2 percent in the first and 3.3 percent in the last quarter of 2006.

In quarterly terms, household consumption was confirmed as the main driver of second-quarter growth. It added 0.3 percentage point to the final outcome after making no contribution in the first quarter.