European Economy Contracts More Than Estimated
Europe’s economy contracted more than estimated in the second quarter as consumer spending, investment and exports were weaker than earlier reported.
Gross domestic product in the 16-nation euro region fell 0.2 percent from the first quarter, when it dropped 2.5 percent, the European Union’s statistics office in Luxembourg said today in publishing final figures on second-quarter GDP. The decline was sharper than the 0.1 percent decline estimated on Sept. 2.
The euro erased its gain after the report and was little changed at $1.4717 as of 10:09 a.m. in London. It had earlier risen to as high as $1.4737.
While the euro-area economy is gathering strength after governments injected billions of euros through tax cuts and spending incentives to fight the worst recession since World War II, the International Monetary Fund projected on Oct. 3 that Europe’s recovery will be “slow and fragile.” Confidence in the economic outlook rose to a one-year high in September and investors also grew more optimistic.
“We can expect some stimulus from exports, but it won’t be enough to boost investment for now,” said David Kohl, deputy chief economist at Julius Baer Holding AG in Frankfurt, who forecasts euro-area GDP rose 0.3 percent in the third quarter. “We won’t see any recessive phases anymore, however.”
From a year earlier, GDP decreased 4.8 percent in the second quarter, also sharper than the 4.7 percent drop estimated earlier.
Deepest Slump
Investment declined 1.5 percent in the second quarter, compared with the 1.3 percent drop estimated earlier, today’s report showed. Consumer spending rose 0.1 percent, half the increase estimated last month.
Exports shrank 1.5 percent in the latest quarter, a sharper drop than the 1.1 percent decline estimated last month. Imports fell 2.9 percent, compared with the 2.8 percent drop estimated earlier.
The world economy is emerging from the deepest slump in more than six decades following interest-rate cuts and $2 trillion of government spending, tax breaks and infrastructure projects. The European Central Bank tomorrow may keep its key interest rate at a record low of 1 percent, according to a Bloomberg News survey of economists.
The IMF said on Oct. 3 that monetary policy will “need to remain supportive for the time being” across Europe to bolster an economic recovery. The euro-area economy may shrink 4.4 percent this year before expanding 0.9 percent in 2010, the Washington-based lender forecast.
The ECB will announce its rate decision at 1:45 p.m. in Venice tomorrow. ECB President Jean-Claude Trichet will hold a press conference 45 minutes later.
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