Europe Economy Expands Less Than Economists Forecast

By Simone Meier - Feb 15, 2011 6:30 PM GMT+0800


Bayerische Motoren Werke AG this month forecast a “significant” sales increase in the first half and German business confidence surged to a record in January, suggesting the recovery is gathering strength. Photographer: Michele Tantussi/Bloomberg

Europe’s economy expanded less than economists forecast in the fourth quarter as cold weather curbed German output and French growth unexpectedly stalled.

Gross domestic product in the euro region rose 0.3 percent from the previous three months, when it increased at the same rate, the European Union’s statistics office in Luxembourg said today. Economists had forecast the economy to expand 0.4 percent, the median of 37 estimates in a Bloomberg News survey showed. Exports fell 0.4 percent in December from the previous month, a separate report showed today.

Companies have relied on faster-growing markets to boost sales as governments from Spain to Greece toughened budget cuts, undermining consumer demand. Bayerische Motoren Werke AG, the world’s largest luxury-car maker, this month forecast a “significant” sales increase in the first half and German investor confidence rose for a fourth month in February, suggesting the recovery is gathering strength.

“Weaker growth is no reason for concern because it was mainly to special factors such as bad weather,” said Alexander Krueger, head of capital market analysis at Bankhaus Lampe KG in Dusseldorf. “Germany will remain the role model, while other countries will have slightly weaker growth.”

The euro was little changed against the dollar after the data, trading at $1.3530 at 11:26 a.m. in Frankfurt, up 0.3 percent on the day.
Cold Temperatures

German GDP rose 0.4 percent in the fourth quarter from the previous three months, when it increased 0.7 percent, as unusually cold temperatures hurt construction output. France’s economy maintained its pace, growing 0.3 percent. In Italy, GDP rose 0.1 percent while Finland’s economy grew 2.5 percent.

In Greece and Portugal, the economies contracted from the previous three months, today’s report showed. The statistics office didn’t provide figures for Ireland.

Reviving exports have boosted the region’s expansion as budget cuts and the highest unemployment in more than 12 years prompted consumers to cut spending. The International Monetary Fund raised its global economic forecast on Jan. 25 and projected China’s economy will expand 9.6 percent and Indian GDP will increase 8.4 percent. Euro-area GDP may rise 1.5 percent, the Washington-based fund said.

“We consider the economic recovery becoming more vigorous and more self-reliant,” Luxembourg Prime Minister Jean-Claude Juncker said at a briefing in Brussels late yesterday after chairing a meeting of euro-region finance ministers. “Growth has surprised upwards and prospects remain encouraging.”
Largest Market

The trade report showed that shipments to the U.S. rose 18 percent in the 11 months through November from a year earlier. Exports to the U.K., the region’s largest market, increased 12 percent, while sales to China and Russia surged 38 percent and 29 percent, respectively. Detailed data are published with a one-month lag. The seasonally adjusted trade deficit was 2.3 billion euros ($3.1 billion) in December, down from 3.2 billion euros.

Infineon Technologies AG, Europe’s second-largest chipmaker, on Feb. 1 raised its full-year sales forecast on surging demand. Munich-based BMW expects “double-digit growth” in markets including Brazil, while Europe “will be flat,” Chief Financial Officer Friedrich Eichiner said on Feb. 3.

“There are still many problems in Europe in countries like Spain,” Eichiner said. “What we are intending is not to be heavily dependent on one market.”
Two Decades

From a year earlier, euro-area GDP rose 2 percent, up from 1.9 percent in the previous quarter, today’s report showed. The statistics office will publish a detailed breakdown of the data on March 3. Estonia joined the euro region this year, making it 17 countries sharing the currency.

Adding to signs the recovery is gathering strength, German business confidence surged to a record last month and unemployment dropped to the lowest in almost two decades. European economic sentiment held near the highest in more than three years, while the services and manufacturing industries expanded at a faster pace in January.

LVMH Moet Hennessy Louis Vuitton SA, the world’s largest maker of luxury goods, said on Feb. 4 that the outlook for 2011 is “excellent” after the Paris-based company reported full- year profit that beat analysts’ estimates. Schaeffler Group, the world’s second-biggest maker of roller bearings, said last month that it may add about 5,000 workers this year to meet orders.

“Business surveys suggest that the economy made a good start to 2011,” said Nick Kounis, an economist at ABN Amro Bank NV in Amsterdam. “It should remain supported by strong, albeit moderating, global growth during the course of this year, as well as a recovery in investment. Fiscal consolidation and sluggish labor markets should weight on domestic demand, leaving the overall economy growing at a moderate pace.”