Business | Economy
European exports, investments stimulate economic recovery
Bankers may extend emergency measures to keep interest rates low
- Bloomberg
- Published: 00:00 September 3, 2010
Zurich : European exports surged the most on record and corporate spending rebounded from a two-year slump in the second quarter, fueling the region's fastest economic expansion in four years.
Exports from the 16-nation euro region surged 4.4 per cent from the first quarter, the biggest gain since data were first compiled in 1995, while corporate spending rose 1.8 per cent, ending eight quarters of contraction, the European Union's statistics office in Luxembourg said yesterday.
Gross domestic product (GDP) growth accelerated to 1 per cent, in line with an August 13 estimate, from a revised 0.3 per cent in the previous quarter.
The economy may struggle to maintain its momentum as governments from Spain to Ireland trim budget deficits just as the global recovery shows signs of weakening.
European Central Bank policymakers who met in Frankfurt yesterday were expected to consider extending emergency lending measures for banks into 2011 and keep their benchmark interest rate at a record low of 1 per cent to bolster a recovery, economists forecast.
"It's clear that the second-quarter momentum won't last," said Christoph Weil, an economist at Commerzbank in Frankfurt.
"The combination of weaker global growth and tougher consolidation measures will result in more moderate rates" of growth.
The euro was little changed against the dollar after the report and was at $1.2821 as of 10.01am in London, up 0.1 per cent since Wednesday.
In the year, GDP rose a revised 1.9 per cent after increasing 0.8 per cent in the first quarter. The statistics office had previously reported a gain of 1.7 per cent. Consumer spending rose 0.5 per cent from the first quarter, when it advanced 0.2 per cent. Imports jumped 4.4 per cent while changes in inventories added 0.2 percentage point to growth.
Companies are already using faster growth to push through higher prices.
Producer-price inflation accelerated to 4 per cent in July from 3 per cent in the previous month, led by higher costs for energy and intermediate goods, the statistics office said in a separate report. That's the fastest since October 2008. In the month, prices rose 0.2 per cent.
An export-led recovery has helped boost earnings at some of the region's largest companies. Paris-based L'Oreal said on August 25 that first-half profit increased 21 per cent, helped by Asia and Latin America.
Hochtief, Germany's largest builder, last month raised its orders outlook.
Clear slowdown
The pace of growth may not be maintained, according to European Central Bank President Jean-Claude Trichet, who said last month the second half of 2010 will probably be "much less buoyant" than the quarter through June.
While Europe's Stoxx 600 Index rose as much as 13 per cent since falling to an eight-month low on May 25, it has pared the gain in the past three weeks on concern that the European and US economies will cool. German bonds rose last month, pushing the yield on the 10-year bond to a record low on August 31.
"There's a clear slowdown in the pipeline," said Jacques Cailloux, chief European economist at Royal Bank of Scotland Group in London.
"The starting point is very strong but if you focus on the engine of growth, which is exports, it peaked in May and has slowed since. It's a bit of a warning signal that central banks should be very cautious."
In June, the ECB projected the economy to grow around 1 per cent this year and 1.2 per cent in 2011. Council member Axel Weber said on August 19 there may be a "modest upward revision" to the forecasts.
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