Eurozone growth almost ground to a halt as Germany and Italy flirted with recession late in 2004 but high-spending French and Spanish shoppers ensured 2 percent growth for the year as a whole. The European Commission said however it saw no reason to cut its forecast for a repeat 2 percent expansion this year, which is much weaker than the forecasts of 3.5 percent upwards in the United States but better than recent years in the eurozone.
EU statistics office Eurostat said 2004 finished with a 0.2 percent GDP rise in the fourth quarter, half what analysts had forecast and weaker than the July-to-September period, which was supposed to have been the worst patch of the year.
"I don't think people should be surprised by these numbers because the writing has been on the wall for a long time that the eurozone recovery is in trouble," David Brown, an economist at Bear Stearns, said.
The bad news began with the German Federal Statistics Office saying Europe's largest economy shrank 0.2 percent in the last three months of 2004 after a flat third quarter.
Italy's GDP also dipped into the red, dipping 0.3 percent, far worse than expected and leaving 2004 growth at 1.1 percent.
"It's shockingly bad," said Deutsche Bank's Susana Garcia.
Economy Minister Domenico Siniscalco himself acknowledged that the Italian report was "a nasty surprise".
The Netherlands announced a 0.1 percent quarterly decrease in GDP for the last three months of 2004, also a surprise dip that left annual growth at 1.3 percent.
MM Warburg economist Carsten Klude called the German report "pretty catastrophic".
The euro nevertheless crept a bit higher versus the dollar. Markets are more focused on interest rates and US deficits.
Some saw a glimmer of hope in more recent data, namely a February ZEW institute survey of investors showing a rise in confidence for the third month running.
"The data show Germany is not slipping into a recession," said Dekabank economist Sebastian Wanke.
Eurozone growth hit a decade peak of 3.5 percent in 2000 at the height of the dot-com bubble but then slumped as part of a global downturn, sinking to 1.6 percent in 2001 and 0.5 percent in 2003, when the US was already back on the rise again.
Analysts said Tuesday's GDP militated against the European Central Bank copying the US Federal Reserve any time soon by hiking euro zone interest rates to head off any inflation.
Weak consumer demand is plaguing Germany and Italy, which with France account for about 70 percent of eurozone output.
France last Friday reported fourth quarter growth of 0.7 percent, a performance believed to have been mostly driven by better consumer demand, something lacking in Germany and Italy.
Spain, where consumer spending is stronger too, announced on Tuesday that its fourth quarter growth rate was 0.8 percent and the economy grew 2.7 percent for the year as a whole after 2.5 percent in 2003, offering some solace after Germany's data.
Separately, the European Commission trimmed its eurozone growth forecast for the first quarter of 2005 to 0.2-0.6 percent from 0.3-0.7 percent and said it expected the bloc's GDP to increase by 0.2-0.6 percent in the second quarter this year.
The zone is forecast to grow around 2 percent this year but the figures for late 2004 will do little to inspire.
Economists are predicting US growth of 3.5 percent or more this year after 4.4 percent last year, the biggest annual gain seen in the world's largest economy since 1999. US growth was about four times the eurozone's fourth quarter rate.
Despite the fears for growth, Bank of France chief Christian Noyer echoed an increasingly wary note on inflation on the heels of ECB Vice-President Lucas Papademos, who says price stability risks are mounting - coded language for suggesting the ECB may be more inclinded to raise rates than previously.
"Accommodative monetary policies around the world will have to be adjusted, even if it is at a moderate pace, in order to avoid the risk of inflationary pressures building up," Noyer said in an interview in Tuesday's International Herald Tribune.
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