Slowdown seen in euro-zone growth

  • Business
  • Sunday, 14 Nov 2004

BRUSSELS: Growth in the euro-zone economy slowed sharply in the third quarter, led by weaker-than-expected results in France and Germany, and is expected to remain sluggish in the next six months. 

The European Union's statistics agency said on Friday that the economy of the 12 nations using the common currency grew by 0.3% from the second quarter, and by 1.9% from the same period last year. 

The figures were below most economists' expectations for gains of 0.4% and 2%. 

This marks a significant slowdown in activity from the second quarter, when gross domestic product expanded by 0.5% on the quarter and by 2% on the year. 

Economists blamed slow world trade, the euro's strength against the dollar, high oil prices and persistently lethargic domestic consumption. 

“It was hard to imagine that growth could be any faster than that,'' said Hicham Zemmouri, euro-zone analyst at ABN-Amro Bank in Amsterdam. 

The EU's head office also cut its growth estimates for the last quarter of the year and the first quarter of next year, without giving a reason for the revisions. 

It now expects the economy to grow by 0.2% to 0.6% in both the fourth quarter and in the first three months of 2005. It had previously said the economy would expand by 0.3% to 0.7% in the October-December period. 

The third-quarter slowdown was influenced by weaker-than-expected growth of 0.1% in both France and Germany, the euro-zone's two largest economies. 

Economists polled by Dow Jones Newswires had been looking for France to expand by 0.4%, and Germany to grow by 0.3%.  

With domestic consumption stubbornly low, particularly in Germany, hopes that exports would push up growth have been dented by the strong euro, which makes European exports more expensive on world market. 

The euro hit an all-time high of US$1.3007 on Wednesday and high oil prices have been pushing up production costs - making it difficult for the euro zone to pick up much steam without a sharp increase in domestic demand. 

Attempting to slow the dollar's slide, ECB President Jean-Claude Trichet has called the surge “brutal'' and “not welcome.'' 

The European Central Bank has left interest rates unchanged since June last year, and is unlikely to raise rates anytime soon unless there are clear indications that the inflation rate will rise over the medium term as a result of higher energy costs. – AP  

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