Europe's Economy Grows 0.6%, Led by Investment Surge (Update1)
By Fergal O'Brien
June 1 (Bloomberg) -- Europe's economy grew at three times the pace of U.S. growth in the first quarter as investment by companies surged the most in a decade, countering a drop in consumer spending.
The economy of the 13 nations that share the euro expanded 0.6 percent from the fourth quarter, when it grew 0.9 percent, Eurostat, the European Union's Luxembourg-based statistics office, said today. Unemployment fell to a record low of 7.1 percent in April, according to a separate report.
Corporate investment helped the euro-area economy overcome the impact on household spending of an increase in Germany's value-added tax. With unemployment falling and business and household confidence at a six-year high, the expansion is being sustained in the current quarter, keeping Europe's economy on course to outperform the U.S. for the first time since 2001.
Europe ``came through the headwinds such as the VAT increase and some slowdown abroad at the start of the year,'' said Silvia Pepino, an economist at JPMorgan Chase & Co. in London. ``By continuing to spend, companies were looking through temporary factors. The impression is that growth remains robust.''
Growth in business investment spending accelerated to 2.5 percent in the first quarter, the fastest since the second quarter of 1997, from 1.5 percent in the fourth quarter, today's report showed. Consumer spending slipped 0.1 percent, its first decline since the last three months of 2001.
U.S. Expansion
Europe's growth compares with U.S. expansion of 0.2 percent in the first quarter from the prior quarter, according to Eurostat. From a year earlier, the euro-area economy expanded 3 percent in the first three months of 2007, revised from an earlier estimate of 3.1 percent.
Reports this week indicate that the euro area is maintaining its growth momentum. Business and consumer confidence unexpectedly rose last month to the highest since 2001, and unemployment in Germany, the region's biggest economy, held at a six-year low in April.
The European Commission today predicted that the euro-area economy will expand 0.6 percent this quarter and next, before growth eases to 0.5 percent in the final three months of the year. The economy grew 2.7 percent last year, the most since 2000, and the commission last month raised its 2007 forecast to 2.6 percent, saying it expects Europe to outpace the U.S. for the first time since 2001.
Euro, Bonds
The euro slipped 0.1 percent to $1.3438 today. Bonds were little changed, with the yield on the benchmark two-year German note down 1 basis point to 4.37 percent at 11:13 a.m. in Brussels. Still, the yield has risen 4 basis points this week. Bond yields move inversely to prices.
A slowdown in the pace of U.S. economic expansion may damp demand for European goods this year, curbing export growth. The world's largest economy grew at a 0.6 percent annual rate in the first quarter, the weakest in more than four years and less than the 1.3 percent pace initially estimated last month, the Commerce Department said yesterday.
Euro-area exports rose 0.3 percent in the first quarter, according to today's report, after growing 3.5 percent in the previous three months. While the euro's 4.1 percent gain since mid-January makes European goods less competitive, the currency has fallen 1.5 percent since reaching a record $1.3681 April 27.
Unemployment Rate
The 7.1 percent unemployment rate for April compares with 7.2 percent in March and is the lowest since the data series began in 1993. EU Monetary Affairs Commissioner Joaquin Almunia said yesterday the jobless rate could move below 7 percent by next year, further bolstering consumer spending.
D+S Europe AG, a German maker of software for call centers, said on May 15 it will add 600 new jobs this year. DAF Trucks NV, the Dutch division of U.S. truckmaker Paccar Inc., this week said it plans to increase daily production at its main plant by about 5 percent.
With growth showing few signs of slowing, the European Central Bank is concerned that companies will raise prices and wages as the economy of the 13 euro nations expands at close to the fastest pace in six years.
ECB council members Klaus Liebscher and Nicholas Garganas said this week that the bank should keep its options open even after the interest-rate increase policy makers have signaled for next week.
`Strong Vigilance'
``I belong to those that say that you shouldn't exclude anything in the future,'' Liebscher said yesterday. ``Strong vigilance is needed to ensure that risks to price stability do not'' materialize over the medium-term.
The central bank has increased its key lending rate seven times to 3.75 percent since late 2005 to slow inflation. Currently, the bank forecasts consumer-price growth to average about 1.8 percent this year, holding below its 2 percent limit for the first time since 1999, before accelerating to around 2 percent in 2008. It will publish revised growth and inflation projections at it next monetary policy meeting on June 7.
The commission presented its quarterly forecasts as ranges built around a mid-point. It predicted growth of 0.4 percent to 0.8 percent in the second quarter and the third, and growth of 0.2 percent to 0.8 percent in the fourth quarter.
By Fergal O'Brien
June 1 (Bloomberg) -- Europe's economy grew at three times the pace of U.S. growth in the first quarter as investment by companies surged the most in a decade, countering a drop in consumer spending.
The economy of the 13 nations that share the euro expanded 0.6 percent from the fourth quarter, when it grew 0.9 percent, Eurostat, the European Union's Luxembourg-based statistics office, said today. Unemployment fell to a record low of 7.1 percent in April, according to a separate report.
Corporate investment helped the euro-area economy overcome the impact on household spending of an increase in Germany's value-added tax. With unemployment falling and business and household confidence at a six-year high, the expansion is being sustained in the current quarter, keeping Europe's economy on course to outperform the U.S. for the first time since 2001.
Europe ``came through the headwinds such as the VAT increase and some slowdown abroad at the start of the year,'' said Silvia Pepino, an economist at JPMorgan Chase & Co. in London. ``By continuing to spend, companies were looking through temporary factors. The impression is that growth remains robust.''
Growth in business investment spending accelerated to 2.5 percent in the first quarter, the fastest since the second quarter of 1997, from 1.5 percent in the fourth quarter, today's report showed. Consumer spending slipped 0.1 percent, its first decline since the last three months of 2001.
U.S. Expansion
Europe's growth compares with U.S. expansion of 0.2 percent in the first quarter from the prior quarter, according to Eurostat. From a year earlier, the euro-area economy expanded 3 percent in the first three months of 2007, revised from an earlier estimate of 3.1 percent.
Reports this week indicate that the euro area is maintaining its growth momentum. Business and consumer confidence unexpectedly rose last month to the highest since 2001, and unemployment in Germany, the region's biggest economy, held at a six-year low in April.
The European Commission today predicted that the euro-area economy will expand 0.6 percent this quarter and next, before growth eases to 0.5 percent in the final three months of the year. The economy grew 2.7 percent last year, the most since 2000, and the commission last month raised its 2007 forecast to 2.6 percent, saying it expects Europe to outpace the U.S. for the first time since 2001.
Euro, Bonds
The euro slipped 0.1 percent to $1.3438 today. Bonds were little changed, with the yield on the benchmark two-year German note down 1 basis point to 4.37 percent at 11:13 a.m. in Brussels. Still, the yield has risen 4 basis points this week. Bond yields move inversely to prices.
A slowdown in the pace of U.S. economic expansion may damp demand for European goods this year, curbing export growth. The world's largest economy grew at a 0.6 percent annual rate in the first quarter, the weakest in more than four years and less than the 1.3 percent pace initially estimated last month, the Commerce Department said yesterday.
Euro-area exports rose 0.3 percent in the first quarter, according to today's report, after growing 3.5 percent in the previous three months. While the euro's 4.1 percent gain since mid-January makes European goods less competitive, the currency has fallen 1.5 percent since reaching a record $1.3681 April 27.
Unemployment Rate
The 7.1 percent unemployment rate for April compares with 7.2 percent in March and is the lowest since the data series began in 1993. EU Monetary Affairs Commissioner Joaquin Almunia said yesterday the jobless rate could move below 7 percent by next year, further bolstering consumer spending.
D+S Europe AG, a German maker of software for call centers, said on May 15 it will add 600 new jobs this year. DAF Trucks NV, the Dutch division of U.S. truckmaker Paccar Inc., this week said it plans to increase daily production at its main plant by about 5 percent.
With growth showing few signs of slowing, the European Central Bank is concerned that companies will raise prices and wages as the economy of the 13 euro nations expands at close to the fastest pace in six years.
ECB council members Klaus Liebscher and Nicholas Garganas said this week that the bank should keep its options open even after the interest-rate increase policy makers have signaled for next week.
`Strong Vigilance'
``I belong to those that say that you shouldn't exclude anything in the future,'' Liebscher said yesterday. ``Strong vigilance is needed to ensure that risks to price stability do not'' materialize over the medium-term.
The central bank has increased its key lending rate seven times to 3.75 percent since late 2005 to slow inflation. Currently, the bank forecasts consumer-price growth to average about 1.8 percent this year, holding below its 2 percent limit for the first time since 1999, before accelerating to around 2 percent in 2008. It will publish revised growth and inflation projections at it next monetary policy meeting on June 7.
The commission presented its quarterly forecasts as ranges built around a mid-point. It predicted growth of 0.4 percent to 0.8 percent in the second quarter and the third, and growth of 0.2 percent to 0.8 percent in the fourth quarter.
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