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Germany in solid economic growth Eurozone growth beats forecasts
(about 4 hours later)
The German economy grew by 0.5% in the first three months of 2007 - more than expected but less than the previous quarter, official figures show. The eurozone saw solid growth in the first three months of 2007, beating expectations, official figures show.
Greater investment during the period had been the main driver behind growth, said the federal statistics office. The 13-country area's economy grew 3.1% year-on-year - below the 3.3% growth seen in the previous quarter, but beating the 2.9% forecast.
But January's value-added tax (VAT) rise dented private spending in Europe's largest economy. The data fuels analysts' view that the area's interest rates are set to rise.
The growth was less than the 1% seen in the previous quarter, but it still marked a 3.3% rise year-on-year. Last week, the European Central Bank (ECB) kept rates at 3.75%, but the bank's head called for "strong vigilance" to counter price risks.
'Buoyant investment' The expression by Jean-Claude Trichet is viewed as a way of implying that the benchmark rate will be lifted to 4% at the ECB's next meeting in June.
"The German economy's upwards trend has continued with a slight weakening in the first quarter." "Stronger-than-expected eurozone GDP growth should help provide the extra leverage to the ECB for higher rates in the next few months," said David Brown of Bear Stearns.
"In the first quarter economic growth was above-all driven by continued vigorous investment activity," said the statistics office. While annual growth was 3.1%, growth on a quarter-by-quarter basis hit 0.6%, beating the 0.5% forecast.
Despite the fall in private spend following VAT rising from 16% to 19%, economists greeted the figures positively. "Today's GDP [gross domestic product] report strengthens our belief that the eurozone economy is on a sustained growth trajectory," said Martin van Vliet, an economist at ING.
"Although the basic story of private consumption and trade as brakes on growth.....appears to be valid, it is happening at a higher level than expected," said Sebastian Wanke, Dekabank. Less damage
Analyst Alexander Kosh echoed this saying that "buoyant investment more than compensated" for the falling private spending. A major factor behind the growth was strength in Germany - the region's largest economy.
"Construction probably also contributed thanks to the good weather," he added. Separate data from Germany's government showed that national growth for the quarter - while less than the previous period - beat expectations, hitting 0.5%.
Many economists are predicting that the country will see growth similar to last year, strengthened by greater corporate investment and strong exports. Although German consumer spending was dented by higher value-added tax (VAT), which rose from 16% to 19% in January, this was countered by strong investment.
Economists greeted the German figures - which showed a 3.3% rise year-on-year - positively.
Bear Stearns' David Brown said: "With the impact of Germany's VAT hike causing less damage to German growth in the first quarter, it has helped solidify euro zone growth... over the last 12 months."
Sebastian Wanke of Dekabank said: "Although the basic story of private consumption and trade as brakes on growth... appears to be valid, it is happening at a higher level than expected."
Eurozone forecasts
Meanwhile, official data from France showed its economy grew by 0.5% in the quarter - the same as the previous three-month period.
Overall, the 27-member European Union saw growth reach 3.2% year-on-year, exceeding the 2.1% seen in the US for the same period.
Separately, the European Commission forecast strong growth over the next six months in the eurozone, before slowing in the final quarter.