Eurozone GDP speeds up

Economic growth accelerated in the eurozone in the first three months of this year but icy weather limited the rebound in Germany, and questions remained about the pace of recovery and the case for interest rate increases.
European Central Bank President Jean-Claude Trichet, who seems keen to raise interest rates to head off inflation, said the news of a 0.6 percent rise in eurozone GDP backed his view that economic growth was now closer to where it should be.
"It fully confirms what we have said - that the underlying trend was around potential," he told reporters in Austria.
That was likely to bolster the conviction in financial markets that the ECB will raise rates next month for a third time since December, although Trichet acknowledged that the devil was in the detail, and there was no immediate detail in the headline GDP figures.
Nout Wellink, the Dutch central bank chief and an ECB policymaker, reinforced the message that rates are likely to rise from 2.5 percent when the Governing Council meets on June 8. "I am not attaching numbers to the probability level - but it is absolutely not to be excluded that interest rates will go up in the short term," he told a news conference.
First quarter growth was double that of the last three months of 2005, when the eurozone scratched out a 0.3 percent rise in GDP while Germany and Italy stagnated.
Germany, however, disappointed in the first quarter, while Italy, the third biggest economy in the currency zone, fared better. Spain held its own, achieving its traditionally faster pace of growth, and some of the smaller economies eased off.
After ending 2005 with zero growth for the final quarter, German gross domestic product rose 0.4 percent on a quarterly basis, below economists' average forecast of 0.6 percent. Italian GDP expanded 0.6 percent, more in line with what economists had hoped for. France did not report GDP data.
Economists, convinced for some time that the German economy is staging a comeback along with the eurozone as a whole, saw no reason to doubt their predictions of a modest recovery which started to take hold some time after the new year began.
The picture was mixed elsewhere and Thursday's reports gave only overall GDP estimates, leaving the ECB and everyone else waiting for details that may offer greater insight.
Belgium's GDP estimate, published more than a week ago, showed a healthy 0.8 percent rise in first-quarter GDP. Dutch growth at 0.2 percent was much less than 0.6 percent in the last quarter of 2005 - itself trimmed from an earlier estimate of 0.8 percent. Finland and Austria also reported slower growth.
Spain, the eurozone's fourth largest economy after Germany, France and Italy, more or less maintained its relatively faster clip with gross domestic product rising 0.8 percent after 0.9 percent in the last quarter of 2006.
Business sentiment is at 5-year highs or better in many countries and a 15-year high in Germany, according to the Ifo research institute. But hard data often do not match and this week figures showed a slump in industrial output in March.
Optimism is still the rule, however, at a time when the IMF is forecasting 4.9 percent growth in the world economy in 2006, the best in 30 years apart from an exceptionally strong 2004.
The European Commission raised its forecasts this week for 2006 eurozone GDP growth to 2.1 percent from a previous prediction of 1.9 percent, after 1.3 percent in 2005. It also expects inflation at 2.2 percent, above the 2-percent benchmark the ECB uses as a measure of medium-term price stability, with high oil and commodity prices partly to blame.