European economic growth accelerated more than initially estimated in the first quarter as investment and construction spending in Germany helped the region weather record oil prices, the euro's gains and market turmoil.
Gross domestic product in the 15 countries that use the euro increased 0.8 percent from the fourth quarter, compared with an earlier estimate of 0.7 percent, the European Union's statistics office in Luxembourg said today. Investment jumped 1.6 percent in the first three months of this year, the most since the second quarter of 2006.
Both the German and European economies are set to slow in the current quarter as oil prices boost costs for consumers and companies and the euro's advance makes exports less competitive. The slowdown, signaled by declining measures for manufacturing and services activity and consumer confidence, may not be as sharp as in the U.S., reinforcing the European Central Bank's case for holding off lowering interest rates as it tries to tame inflation.
"When it comes to growth, the past has shown that the ECB a clear preference for hard numbers,'' said Carsten Brzeski, an economist at ING Group in Belgium. "Confidence indicators have not plunged enough to justify a rate cut at the current juncture. The ECB has still time and room to focus on high inflation.''
The euro rose 0.3 percent to $1.5589 as of 12:12 p.m. in Brussels. The currency has risen 16 percent against the dollar in the last 12 months and reached an all-time high above $1.60 in April. The Dow Jones Stoxx 600 gained 0.1 percent to 318.72 and the Stoxx 50 index was little changed.
First Quarter
From a year earlier, the economy expanded 2.2 percent in the first quarter. Fourth-quarter growth was revised down to 0.3 percent from 0.4 percent compared with the prior three months.
Exports rose 1.9 percent and government spending increased 0.4 percent from the prior quarter, the statistics office said in today's report, the first detailed look at the first-quarter GDP data. Consumer spending gained 0.2 percent after contracting 0.1 percent in the previous three months.
In the first quarter, Germany's economy expanded at the fastest pace in 12 years as construction spending jumped 4.5 percent. German builders benefited from an exceptionally mild winter, according to the German weather service, while orders from Asia boosted sales.
Hochtief, Volkswagen
Hochtief AG, Germany's largest construction company, last month said first-quarter profit more than tripled on mining projects in Asia and construction in the Middle East and Australia. Sales at Volkswagen AG rose almost 8 percent in the four months through April as growth in China and Brazil offset a decline in North America.
"The first quarter was an outlier and shouldn't be read as where the economy is going,'' said Michael Hume, chief European economist at Lehman Brothers International in London. He forecast that the German economy will shrink in the current quarter due partly to a fading construction effect. The euro area as a whole may record zero growth this quarter, he said before today's report was published.
Data since the end of the first quarter have signaled growth across Europe is slowing. Retail sales in Germany unexpectedly dropped for a second month in April as faster inflation left consumers with less purchasing power, while unemployment rose for the first time in more than two years. In France, business confidence declined to the weakest in more than two years last month as rising energy prices and the euro's advance hurt the outlook for corporate profits.
Ifo Index
Other data suggest a more benign outlook. Germany's Ifo index of business sentiment rose in May, while European retail sales rose for the first time in three months, according to a survey of more than 1,000 executives by NTC Economics Ltd.
Still, adding to pressure on Europe's companies and households is easing demand in the U.S. amid the fallout from the housing slump there, which pushed up credit costs worldwide. ECB council member Nout Wellink said yesterday the euro-area economy hasn't felt the full effect yet of the U.S. slowdown and this will become visible with a certain time lag.
While economic growth is cooling, the ECB is focused on price stability. That job has become more difficult in the last 12 months as food and oil prices soar. Crude oil rose to a record $135.09 a barrel on May 22 and consumer-price inflation accelerated to 3.6 percent last month, the fastest pace since the ECB's inception 10 years ago.
Timely Reminder
"The present price hikes are a timely reminder that, when it comes to inflation, complacency is out of place,'' ECB council member Axel Weber said on May 30 "We cannot rest on our laurels where credibility is concerned.''
Producer-price inflation accelerated to 6.1 percent in April, the most in more than seven years, from 5.8 percent in March, according to separate figures published today.
ECB policy makers hold their next rate-setting meeting in two days, when the central bank will publish new staff forecasts on inflation and growth. The ECB will probably hold its key rate at 4 percent this week and leave it there until at until at least February, according to economists surveyed by Bloomberg.
"The ECB's response will be to tolerate slower growth and leave rates unchanged for a while,'' said Silvia Pepino, an economist at JPMorgan Chase & Co. in London. "That said, the central bank's rhetoric is likely to be tough on inflation, leaning towards a tightening bias.''
Gross domestic product in the 15 countries that use the euro increased 0.8 percent from the fourth quarter, compared with an earlier estimate of 0.7 percent, the European Union's statistics office in Luxembourg said today. Investment jumped 1.6 percent in the first three months of this year, the most since the second quarter of 2006.
Both the German and European economies are set to slow in the current quarter as oil prices boost costs for consumers and companies and the euro's advance makes exports less competitive. The slowdown, signaled by declining measures for manufacturing and services activity and consumer confidence, may not be as sharp as in the U.S., reinforcing the European Central Bank's case for holding off lowering interest rates as it tries to tame inflation.
"When it comes to growth, the past has shown that the ECB a clear preference for hard numbers,'' said Carsten Brzeski, an economist at ING Group in Belgium. "Confidence indicators have not plunged enough to justify a rate cut at the current juncture. The ECB has still time and room to focus on high inflation.''
The euro rose 0.3 percent to $1.5589 as of 12:12 p.m. in Brussels. The currency has risen 16 percent against the dollar in the last 12 months and reached an all-time high above $1.60 in April. The Dow Jones Stoxx 600 gained 0.1 percent to 318.72 and the Stoxx 50 index was little changed.
First Quarter
From a year earlier, the economy expanded 2.2 percent in the first quarter. Fourth-quarter growth was revised down to 0.3 percent from 0.4 percent compared with the prior three months.
Exports rose 1.9 percent and government spending increased 0.4 percent from the prior quarter, the statistics office said in today's report, the first detailed look at the first-quarter GDP data. Consumer spending gained 0.2 percent after contracting 0.1 percent in the previous three months.
In the first quarter, Germany's economy expanded at the fastest pace in 12 years as construction spending jumped 4.5 percent. German builders benefited from an exceptionally mild winter, according to the German weather service, while orders from Asia boosted sales.
Hochtief, Volkswagen
Hochtief AG, Germany's largest construction company, last month said first-quarter profit more than tripled on mining projects in Asia and construction in the Middle East and Australia. Sales at Volkswagen AG rose almost 8 percent in the four months through April as growth in China and Brazil offset a decline in North America.
"The first quarter was an outlier and shouldn't be read as where the economy is going,'' said Michael Hume, chief European economist at Lehman Brothers International in London. He forecast that the German economy will shrink in the current quarter due partly to a fading construction effect. The euro area as a whole may record zero growth this quarter, he said before today's report was published.
Data since the end of the first quarter have signaled growth across Europe is slowing. Retail sales in Germany unexpectedly dropped for a second month in April as faster inflation left consumers with less purchasing power, while unemployment rose for the first time in more than two years. In France, business confidence declined to the weakest in more than two years last month as rising energy prices and the euro's advance hurt the outlook for corporate profits.
Ifo Index
Other data suggest a more benign outlook. Germany's Ifo index of business sentiment rose in May, while European retail sales rose for the first time in three months, according to a survey of more than 1,000 executives by NTC Economics Ltd.
Still, adding to pressure on Europe's companies and households is easing demand in the U.S. amid the fallout from the housing slump there, which pushed up credit costs worldwide. ECB council member Nout Wellink said yesterday the euro-area economy hasn't felt the full effect yet of the U.S. slowdown and this will become visible with a certain time lag.
While economic growth is cooling, the ECB is focused on price stability. That job has become more difficult in the last 12 months as food and oil prices soar. Crude oil rose to a record $135.09 a barrel on May 22 and consumer-price inflation accelerated to 3.6 percent last month, the fastest pace since the ECB's inception 10 years ago.
Timely Reminder
"The present price hikes are a timely reminder that, when it comes to inflation, complacency is out of place,'' ECB council member Axel Weber said on May 30 "We cannot rest on our laurels where credibility is concerned.''
Producer-price inflation accelerated to 6.1 percent in April, the most in more than seven years, from 5.8 percent in March, according to separate figures published today.
ECB policy makers hold their next rate-setting meeting in two days, when the central bank will publish new staff forecasts on inflation and growth. The ECB will probably hold its key rate at 4 percent this week and leave it there until at until at least February, according to economists surveyed by Bloomberg.
"The ECB's response will be to tolerate slower growth and leave rates unchanged for a while,'' said Silvia Pepino, an economist at JPMorgan Chase & Co. in London. "That said, the central bank's rhetoric is likely to be tough on inflation, leaning towards a tightening bias.''
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