Euro growth dragged down by France and Italy

Economic growth in the 12 nations using the euro currency slowed to 0.5% in the third quarter, the European Union announced today, dragged down by weak growth in France and Italy.

The European Commission kept its forecast for the last three months of 2006 little changed, but raised its outlook for the first quarter of 2007 “on the back mainly of upward revisions of trade data and continuously positive developments in survey data”.

Results for the three months ending September 30 were revised upward to 1.0% for both the euro area and the 25-nation European Union, the EU statistics agency Eurostat said, the fastest acceleration in the euro area since the first quarter of 2000.

Tracking growth from the third quarter of 2005, the economy expanded by 2.7% over the year, it said.

In the 25-nation EU, third-quarter gross domestic product growth was up 0.6%, and on an annual basis grew by 2.9%.

French GDP was unchanged on the quarter, while Italian GDP rose 0.3% from the second quarter.

Data from all 12 of the euro member states were not available.

“Consumer spending clearly remains the weakest link in the eurozone economy, and this has been highlighted by the disappointing November retail sales data for Germany,” said Howard Archer, an economist at Global Insight.

“In addition, weakening French consumer confidence raises concern about how long the consumer can drive French growth.”

Germany’s Federal Statistics Office announced today that retail sales declined slightly in October, confounding expectations of rising consumer sentiment. Sales are expected to flatten in January as German shoppers face a three-percentage-point hike in sales tax.

Slovakia saw its third-quarter growth rise by 2.6% and Greece by 2.2%. On an annual basis Slovak GDP growth stood at 9.8%, ahead of Lithuania with 7.1% and Greece with 4.4%.

Economic growth in the eurozone was in line with other major economies. US and Japanese GDP also grew by 0.5% in the July-to-September quarter.

Looking ahead, the European Commission forecast growth of 0.3% to 0.7% in the last three months of 2006, little changed from its October predictions, but it raised its outlook for the first quarter of 2007 to 0.3%-to-0.8% growth, compared with the flat-to-0.5% growth expected earlier.

This raised forecast lends support to expectations that the European Central Bank will lift interest rates in December by a quarter of a percentage point to 3.5%.