Better growth prospects

BRUSSELS – Eurozone economic growth slowed in the second quarter but beat expectations slightly as Italy and the Netherlands moved out of recession and Germany’s economy stagnated amid high oil prices and weaker world demand. The European Commission said it expected a pickup in the fourth quarter as a weaker euro and a stronger global economy boosted eurozone exports. The bloc’s domestic demand is likely to stay weak, making any sustainable recovery unlikely, economists said. European Union statistics office Eurostat said in its «flash» estimate that the 12-nation eurozone economy expanded by 0.3 percent quarter-on-quarter in the April-June period, down from 0.5 percent in previous three months. «Eurozone GDP growth slowed in line with expectations in the second quarter, as surprisingly sharp rebounds in activity in Italy and the Netherlands were countered by a renewed marked slowdown in Germany,» said Howard Archer of Global Insight. After a string of data showing stronger activity and a better business climate, the European Commission forecast eurozone quarterly growth in a range of 0.4-0.8 percent in the fourth quarter, partly thanks to a weaker euro. The Commission kept its third-quarter growth forecast unchanged at 0.2-0.6 percent. «The first forecast for growth in the fourth quarter of 2005 is 0.6 percent, supported by the lagged effects of favorable exchange rate developments and an improved international environment,» the EU executive said in a statement. In the April-June period, the quarterly growth was led by a 1.2 percent increase in the Netherlands and 0.9 percent in Spain and, crucially, 0.7 percent in Italy. In Germany, the eurozone’s biggest economy, GDP was unchanged in the second quarter. Eurozone growth was better than a forecast of 0.2 percent among economists polled by Reuters. Year on year, the eurozone’s gross domestic product grew 1.2 percent in the second quarter, down from 1.4 percent in the first three months of 2005. Economists had expected year-on-year growth of 1.1 percent. The euro has strengthened about 9 percent against the dollar this year, making the eurozone’s exports more competitive. Weak growth in the eurozone, where domestic demand is stifled by high unemployment and soaring oil prices, contrasted with that of the United States, where GDP grew 0.8 percent in the second quarter and 3.6 percent year-on-year, Eurostat said. The International Monetary Fund has lowered its eurozone growth forecast for the whole 2005 to 1.3 percent from 1.6 percent, due to high energy costs and sluggish internal demand. In the whole 25-nation EU, GDP grew by 0.3 percent quarter-on-quarter in the second quarter and 1.3 percent year-on-year, Eurostat said.