Dublin: Europe's economy expanded at a faster pace than economists forecast in the first quarter as a global recovery boosted exports, helping the region overcome the Greek fiscal crisis and consumers' reluctance to increase spending.
Gross domestic product in the 16 euro nations rose 0.2 per cent from the fourth quarter, when it remained unchanged, the European Union's statistics office in Luxembourg said yesterday.
Economists had forecast growth of 0.1 per cent, the median of 31 estimates. Industrial production gained 1.3 per cent in March from February, when it rose 0.7 per cent, a separate report showed.
The euro-area economy may gather strength after European leaders earlier this week pledged a rescue package worth almost $1 trillion (Dh3.67 trillion) to counter a spreading Greek debt crisis and restore confidence. Concern about governments' ability to tackle their deficits has pushed down the euro 11 per cent against the dollar this year, helping bolster the region's export-led recovery.
"Evidence is that the recovery in the centre of the euro region gathered pace in the second quarter," said Jacques Cailloux, chief European economist at Royal Bank of Scotland Group in London. "It's quite clear that given the situation in the periphery, we're not immune to a financial shock to the system. The euro-IMF package should help stabilise financial markets and protect the real economy."
Gains
The euro pared its gains against the dollar after the GDP data. The European currency traded at $1.2685 at 10.32am in London, up 0.2 per cent on the day after reaching $1.2739 earlier.
From the year-earlier quarter, euro-area GDP rose 0.5 per cent after declining 2.2 per cent in the fourth quarter, yesterday's report showed. In Germany, Europe's largest economy, GDP rose 0.2 per cent in the first quarter from the previous three months. French GDP rose 0.1 per cent from the fourth quarter and the Italian economy expanded 0.5 per cent.
Howard Archer, chief European economist at IHS Global Insight in London, said that, while growth probably "significantly improved" in the current quarter, a recovery may be "erratic" over the coming months.
"The Greek debt crisis and contagion effects is increasing pressure for fiscal policy to be tightened earlier and faster in a number of countries with likely negative consequences for growth," he said. "The euro region will therefore be fervently hoping that global growth and trade can pick up further over the coming months, boosting its own recovery prospects."
Exports
With the euro's decline making European goods more competitive, companies have relied on exports to bolster earnings as households hold back spending. Europe's services and manufacturing industries expanded at the fastest pace in almost three years in April and economic confidence improved. European industrial production increased 6.9 per cent in March from a year earlier, yesterday's report showed.
The International Monetary Fund on April 21 raised its global growth forecast for this year to 4.2 per cent from 3.9 per cent, citing a faster expansion in emerging economies including China. The euro region's economy may grow 1 percent in 2009, the Washington-based IMF forecast.
European Central Bank President Jean-Claude Trichet said on May 6 that while some recent economic indicators were "quite encouraging," there's reason to remain "prudent and cautious."
European policy makers on May 10 pledged 440 billion euros in loans or guarantees for nations facing instability with the IMF adding 250 billion euros to counter a spreading sovereign-debt crisis.
Greece remains firmly in recession
Dublin: In contrast to the overall European picture, the Greek economy contracted 0.8 per cent from the fourth quarter, when it also shrank 0.8 per cent. In Spain, the economy expanded 0.1 per cent in the first quarter and Portugal grew 1 per cent. Ireland hasn't released GDP data for the first quarter.
Greece's economy shrank less than expected in the first three months of the year but the debt-ridden country was still firmly in recession which is expected to deepen, while the rest of the euro zone grows.
"The contraction of economic activity is continuing at about the same pace on a quarterly basis as domestic demand falls on the background of declining disposable income and increased uncertainty," said Nikos Magginas, economist at National Bank of Greece.
"The pace of contraction of economic activity is expected to accelerate in the following two quarters as a result of a further decline in the disposable income from the additional austerity measures and mounting uncertainty over near-term macroeconomic prospects."
