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Euro-Zone 3Q GDP Growth Revised Up

Wednesday, January 9, 2008

UPDATE: Euro-Zone 3Q GDP Growth Revised Up To +0.8% QQ

(Adds details, economist comment)

By Emma Charlton

Euro-Zone 3Q GDP - Final Report ! !
3Q 2Q ! Consensus: +0.7% QQ !
on qtr +0.8% +0.3% ! +2.7% YY !
on yr +2.7% +2.5% ! Actual: +0.8% QQ !
! +2.7% YY !

LONDON (Dow Jones)--The euro-zone economy posted a better than expected recovery in the third quarter, expanding at a rate of 0.8% quarter-on-quarter, as stronger business investment pushed the measure higher than the previously announced estimate of 0.7%.

The final estimate of quarterly gross domestic product growth in the single currency area was greater than the 0.7% rate expected by economists, data from European statistics agency Eurostat showed Wednesday.

On the year, the rate was unrevised and in line with economists' predictions, showing a 2.7% expansion over the three months to September.

That means the euro zone's growth recovered in the third quarter, after expanding at a disappointing rate of 0.3% on the quarter and 2.5% on the year in the three months to June.

And the data suggest that the euro zone's economic growth remained resilient in the three months to September, even as the effects of a strong euro and tight credit conditions set in.

"Third-quarter growth benefited from solid consumer spending and a renewed strengthening in business investment after it faltered in the second quarter," said Howard Archer, an economist at Global Insight in London. "Higher public spending and rising inventories also contributed to growth, but net trade was marginally negative despite healthy export growth," he said.

The quarterly rate was pushed higher by new domestic investment by businesses - or gross fixed capital formation - which grew 1.2% over the three-month period, after falling 0.1% in the second quarter.

Exports rose 2.2% over the quarter, Eurostat said, after rising just 0.9% in the second quarter, while imports increased 2.6%, well ahead of the 0.3% uplift seen in the second quarter of the year.

Household consumption expenditure increased 0.5% over the quarter after posting a 0.6% rise in the second quarter.

While the figures show that the economy recovered somewhat in the third quarter, after a sluggish 2.5% annual growth rate in the second quarter, it is still far behind the strong growth rates seen in the final quarter of 2006 and the first quarter of 2007, when the economy expanded at an annual rate of 3.2%.

And economists expect that growth will slow markedly over 2008, as the impact of the credit crunch, the strong euro, the feed through of higher interest rates and elevated oil prices begin to take their toll.

It's this loss of growth momentum, combined with an inflation rate that's over 100 basis points above the 2% target, that the European Central Bank's Governing Council will focus on when it meets Thursday to set the interest rate for the currency block.

Economists expect the central bank will leave the rate on hold at 4.0%, as it weighs above-target inflation with the likelihood of much slower growth.

A breakdown by country showed strong annual GDP growth in Spain, where the economy grew at a rate of 3.8% in the third quarter of 2007, compared with the third quarter of 2006.

The euro zone's largest economy, Germany, expanded at a rate of 0.7% over the third quarter and recorded an annual growth rate of 2.5%, while the French economy expanded at a quarterly rate of 0.8% and an annual rate of 2.2%.

-By Emma Charlton,

Posted by MOHAMED SAID at 2:51 AM  


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