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Euro zone growth revised to 0.7%
Economy expected to feel the full impact of inflation and credit crunch in second quarter.
- Reuters
- Published: 00:04 July 10, 2008
Brussels: The euro zone economy rebounded less strongly than previously thought in the first quarter of 2008, data showed on Tuesday, adding to worries about the health of the currency area.
Gross domestic product in the 15 countries using the euro rose 0.7 per cent quarter-on-quarter, European Union statistics office Eurostat said, revising downwards its previous estimate of 0.8 per cent.
It said euro zone GDP rose 2.1 per cent in annual terms, compared with 2.2 per cent estimated in June.
"Although euro zone GDP growth in the first quarter was revised down marginally, it was still... impressive-looking," said Howard Archer, chief economist at Global Insight.
"However, it is clear that this performance was inflated by a number of factors and overstated the strength of the economy," he said.
Still, the unexpected revision was another sign the euro zone's economy is being hit by a credit crunch and the US slowdown that followed the subprime crisis, as well as a strong euro and faltering consumer demand amid high inflation.
The economy will feel the full impact of those factors in the second quarter, analysts said.
"We expect a fall in GDP by 0.2 per cent, quarter-quarter, the first fall on a quarter-quarter basis since the first quarter of 1996," said Juergen Michels, economist at Citigroup.
"That is because of financial market turbulence but also reflects that the strong euro has some impact on activity in the euro area, plus the impact from higher energy costs on domestic demand," he added.
Economists polled by Reuters had expected Eurostat to confirm its previous estimate for the first quarter.
On a positive note, the statistical office revised up by 0.1 percentage point its growth figures for the fourth quarter of 2007 to 0.4 per cent quarter-on-quarter and 2.2 per cent year-on-year.
Just before the figures were published, top euro zone policymakers expressed concern about growth prospects and inflation, which has been boosted by soaring prices of energy and food.
"Uncertainties surrounding the outlook for growth remain, with downside risks mainly related to further unanticipated increases in oil prices ... and increasing protectionist tendencies," European Central Bank President Jean-Claude Trichet told the European Parliament.
Similar worries were voiced by Jean-Claude Juncker, the chairman of the Eurogroup of finance ministers. He said inflation was citizens' main concern, so the ECB was right to fight price growth with determination.
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