Eurozone growth - second-quarter

Economic growth in the 13 nations sharing the euro fell in the second quarter to the slowest pace since the beginning of 2005 as an investment boom petered out, according to official EU data on Tuesday.

Figures from the European Union's Eurostat data agency, which were adjusted for seasonal variations, showed eurozone growth slowing to 0.3 percent in the three months to June and 2.5 percent over one year.

After a gradual recovery, the 8.4-trillion-euro (11.4-trillion-dollar) eurozone economy hit a soft patch in the second quarter after expanding 0.7 percent in the first three months of the year and 3.2 percent over 12 months.

The data, which were in line with Eurostat and economists' estimates, showed businesses reining in investment and construction activity dropping sharply even before fears of a credit crunch emerged over the summer.

While a long investment boom ground to a halt, the eurozone economy benefited from higher consumer spending and stronger demands for exports from the eurozone despite the strength of its currency in the second quarter. Eurozone business investment pulled back 0.2 percent in the second quarter after expanding 2.0 percent in the first quarter while activity in the construction sector contracted 1.6 percent after growing 1.9 percent.

Meanwhile, consumer spending grew 0.5 percent after stalling at the start of the year while exports grew 1.1 percent after 0.8 percent in the first quarter.

Economists said that the pull-back in business investment would likely prove to be temporary despite fears about a credit squeeze, which swept across financial markets in August, raising borrowing costs. "It seems likely that the retreat in investment in the second quarter was largely a temporary correction after recent sustained strong capital spending," said Global Insight economist Howard Archer. "Indeed, companies' investment intentions currently still appear to be relatively healthy," he added.

Encouraged by the strong consumer spending, Capital Economics analyst Jennifer McKeown also said she thought business investment would bounce back.

The EU's executive arm projected growth in the third quarter of 0.3-0.8 percent, 0.2-0.8 percent in the fourth quarter, and 0.2-0.9 percent for the first quarter of 2008. In Eurostat's report, economic growth in the 27-nation EU also slowed in the second quarter, easing to 0.5 percent and 2.8 percent over one year.

AFP