Europe’s big boys lose steam in second quarter

DUBLIN: European economic growth slowed more than economists expected in the second quarter as a rebound in consumer spending failed to make up for weakness in manufacturing and construction.

The economy of the 13 nations that share the euro expanded 0.3% from the first quarter, when it grew 0.7%, the European Union’s statistics office in Luxembourg said. The growth is the slowest since the fourth quarter 2004. From a year earlier, the economy expanded 2.5%.

The euro’s 7% gain against the dollar in the last year has eroded export competitiveness and higher oil prices increased costs for companies and consumers. While record-low unemployment may lead to more consumer spending, confidence may be hurt by further turmoil in financial markets.

“It confirms what we've thought, that from the spring onwards and into the second half, we see the economy losing some momentum,” said Kenneth Wattret, an economist at BNP Paribas in London. “Most business surveys still suggest growth, but the economy is slowly decelerating.”

The second-quarter growth was slower than the 0.5% median forecast of 32 economists surveyed by Bloomberg News. The statistics office, Eurostat, will publish a breakdown of the gross-domestic-product data on September 3. The European Central Bank forecasts the economy will expand about 2.6% this year, close to the 2.7% recorded in 2006, which was the fastest in six years.

Growth in Germany, the region’s largest economy, slowed to a weaker-than-expected 0.3% in the second quarter from 0.5% in the previous three months, the country’s statistics office said. Growth was curbed by a slowdown in construction after a first-quarter surge during the mildest winter on record. France’s economy, the second-biggest in the euro area, unexpectedly slowed in the second quarter, while expansion in Italy and Spain also was less than economists had expected.

The growth is “disappointing, but it’s just a blip, because a construction slowdown had a significant impact,” said Aurelio Maccario, an economist at Unicredit MIB in Milan. “Domestic demand remains in good shape and that keeps the outlook rosy.”

The European Commission predicted that the euro-area economy will expand 0.6% this quarter before growth eases to 0.5% in the final three months of the year. The commission presented the forecasts as ranges built around a mid-point. It predicted growth of 0.3% to 0.8% in the third quarter and 0.2% to 0.8% in the fourth, lowering the bottom end of the range for both quarters from its last forecasts in July. It projects growth of 0.2% to 0.9% in the first quarter of 2008.

Europe’s manufacturing industries grew at the slowest pace in 17 months in July, while confidence among executives and consumers fell more than economists forecast. In contrast, services growth was the fastest in a year as unemployment fell to 6.9%, the lowest since data collection started in 1993. Industrial production declined 0.1% in June from the previous month and was up 2.3% from a year earlier, according to a separate report.