Eurozone economy grows slightly in first quarter

The eurozone economy grew slightly less than expected in the first quarter and prospects for the second quarter darkened further as the European Commission on Wednesday again cut its growth forecast. EU statistical agency Eurostat said gross domestic product in the 12-nation single currency area rose only 1.3 percent year-on-year in the first quarter of 2005, less than the 1.4 percent estimated previously. An estimated 0.5 percent rate of growth in the first quarter from the meagre 0.2 percent in the fourth quarter was unrevised.
The euro zone unemployment rate remained stuck at 8.9 percent in April for the third time in a row as 13 million people lacked jobs, underscoring the challenge of getting consumers to loosen their purse strings and spur growth.
Private consumption growth in the euro zone halved to 0.3 percent in the first quarter against the previous three months, investment fell 0.7 percent while imports dropped 1.1 percent.
"The big surprise was the big drop in investment activity ... The drop in imports is worrying because it is an indication that domestic demand is weak," said Lorenzo Codogno, European economist at Bank of America.
The EU Commission cut its growth forecast for the second quarter for the second time by 0.1 percentage point to 0.1-0.5 percent but retained a 0.2-0.6 percent estimate for the third quarter.
The Commission expects eurozone growth to decline to 1.6 percent in 2005 from last year's 2.0 percent. This forecast mirrors that of the European Central Bank, but there is speculation the ECB will cuts its forecast later this week.
Economists said the figures reinforced expectations that the ECB would not raise interest rates from the current 2.0 percent this year, with some analysts speculating about a rate cut.
The eurozone's 0.5 percent growth in the January-March period from with previous quarter compares with a 0.9 percent expansion in the United States and 1.3 percent in Japan.
Eurostat also reaffirmed the quarterly GDP growth of 0.5 percent in the whole EU of 25 member states in the first three months of this year, and revised down the year-on-year figure to 1.6 percent from 1.7 percent.