Europe's Expansion Accelerates Less Than Estimated

Europe's economy expanded less than previously estimated in the first three months of 2008, while trade figures from Germany and France signaled that the slowdown deepened in the second quarter.

Gross domestic product in the 15 nations that use the euro grew 0.7 percent in the first quarter from the previous three months, less than the 0.8 percent previously reported, the European Union's statistics office in Luxembourg said today. Import growth was revised to 2 percent from 1.8 percent.

Europe's largest economies have shown signs of cooling expansion since the end of the first quarter, with measures of manufacturing, services and consumer spending declining. Exports from Germany, which helped to bolster growth in the first three months of the year, fell the most in almost four years in May.

German sales abroad, adjusted for working days and seasonal changes, declined 3.2 percent in May from April, the biggest drop since June 2004, the Federal Statistics Office in Wiesbaden said today. French exports fell 1.7 percent, the Trade Ministry in Paris said. The drop in German exports was unexpected by economists, while the French decline pushed its trade deficit to a record 4.74 billion euros ($7.43 billion) in May.

The euro was up 0.4 percent against the dollar at $1.5712 at 12:25 p.m. in London. European 10-year government bonds fell, snapping a four-day gain as European Central Bank President Jean-Claude Trichet said inflation is at ``worrying'' levels. The yield on the 10-year bund, Europe's benchmark government security, added 4 basis points to 4.45 percent.

Slowing growth may limit the ECB's room to increase borrowing costs further to fight the fastest euro-area inflation in more than 16 years, after the central bank last week raised its key interest rate to 4.25 percent, a seven-year high. The quarter-point increase on July 3 was ``timely'' and may have already eased concern in financial markets about rising consumer prices, ECB council member Mario Draghi said today in Rome.

The first-quarter GDP report showed that euro-area consumer spending rose 0.2 percent after a 0.1 percent decline in the previous three months, while investment grew 1.6 percent.

Economic data since the end of the quarter signal that growth is cooling. Europe's service and manufacturing industries contracted in June and a measure of retail sales plunged to its second-lowest level since January 2004.

Europe, Bloomberg
7/9/2008 6:52:02 AM