Eurozone set for brisk growth despite first-quarter breather
After finishing 2006 with the fastest growth in six years, the combined economy of the countries sharing the euro slowed in the first quarter to 3.0 percent over 12 months, the EU's Eurostat data agency said.
The rate, which was revised down from a first estimate of 3.1 percent, marked a slight slowdown from the final three months of 2006 when the eight-trillion-euro (11-trillion-dollar) economy grew by 3.3 percent.
On a quarterly basis, growth in the eurozone economy eased to 0.6 percent in the first quarter after hitting 0.9 percent in the final quarter of 2006, Eurostat said.
The data, adjusted for seasonal variations, were roughly in line with private economists' forecasts that the eurozone economy grew 0.6 percent in the first three months and 3.1 percent over one year.
Meanwhile, growth also cooled in the 27-nation EU in the first quarter, easing to 0.6 percent over one quarter and 3.2 percent over one year.
Growth was widely expected to slow slightly at the beginning of the year as consumers in Germany, the biggest economy in Europe, were hit with a full three percentage point increase in value added or sales tax.
"Eurozone growth was resilient in the first quarter, particularly given the sales tax hike in Germany, benefiting from impressively strong investment," said economist Howard Archer at consultancy Global Insight.
Eurostat's second snapshot of the European economy at the beginning of the year showed a slight decline of 0.1 percent in eurozone household spending in the first quarter, following growth of 0.4 percent at the end of 2006.
Although household spending was weak in the first quarter, businesses kept pumping more money into new investments, which jumped 2.5 percent from 1.5 percent in the last quarter of 2006.
Looking ahead, the European Commission forecast that the eurozone growth would remain steady over the course of the rest of the year.
It projected the economy would grow in a range of 0.4-0.8 percent in both the second and third quarters and 0.2-0.8 percent in the final three months of the year.
"Latest eurozone data and survey evidence remain relatively upbeat, suggesting that above-trend growth is continuing," Archer said.
"Indeed, the further decline in eurozone unemployment in May to a record low should be supportive for consumer spending, which has so far been the softest link in the region's growth story," he added.
The unemployment rate in the 13 nations sharing the euro extended in April a steady decline underway since late 2004, falling to a record low of 7.1 percent, Eurostat said.
Signs of improvement in the labor market came after a Commission survey published Thursday showed overall economic optimism in Europe rising to more than a six-year high, boosted in particular by growing consumer confidence.
The growing willingness of European consumers to spend is all the more welcome because it comes amid signs that the manufacturing sector is beginning to feel some pain from euro's current strength, which makes eurozone exports more expensive.
Manufacturing activity in the 13 nations that share the euro eased to a 15-month low point in May despite expectations of a slight improvement, according to a widely watched survey. However, noting improving labor market trends and surging German retail sales, economist Jennifer McKeown at Capital Economics said that "there is plenty of evidence to suggest that, even if industrial growth is now starting to slow, the consumer sector should pick up the slack."