Eurozone economic growth may rebound more strongly than expected this year, the European Commission said on Friday, as data showed a drop in consumer demand and strong imports were behind weak growth at the end of 2005.
The European Union's executive arm forecast quarterly gross domestic product growth in the first three quarters of this year at 0.4-0.9 percent, raising slightly its previous projection for the first three months of 2006.
Data from the EU's statistics office confirmed that growth in the 12 countries using the euro halved to 0.3 percent on a quarterly basis in the last three months of 2005, because of a drop in household consumption and strong imports.
The weak fourth quarter growth, first reported in February, clashes with upbeat business survey data, putting a question mark over the strength of the recovery. Economists were concerned that some of the survey strength may have come from a build-up of inventories seen in the fourth quarter.
But economists said the February purchasing managers' index (PMI) for the euro zone on Friday confirmed the upswing, backing a 2006 growth forecast increase by the European Central Bank on Thursday to 2.1 percent from 1.9 percent.
"The collective denial on the eurozone economic recovery is belatedly being challenged as markets and forecasters finally wake up to the reality," said Ken Wattret, economist at BNP Paribas.
The composite PMI combining data from the manufacturing and services sectors, which some economists see as the best leading indicator for eurozone growth, rose strongly again in February to its highest level since September 2000.
"(It) is consistent with growth in the coming quarters at twice the euro zone's potential rate - approaching 1 percent quarter-on-quarter," Wattret said.
HSBC economist Robert Prior-Wandesforde said the PMI pointed to GDP growth of 0.7 percent in early 2006. The mid-point of the Commission's quarterly forecast is 0.65 percent.
But in a mid-term forecast last week, the Commission saw first- and second-quarter growth at 0.5 percent, rising to 0.6 percent in the third and fourth quarters, and said the acceleration would be a result of stronger domestic demand.
Eurostat said that year-on-year, eurozone growth was 1.7 percent in the fourth quarter, roughly half the rate in the United States of 3.2 percent and well below Japan's 4.5 percent.
Eurostat said demand from households in the euro area fell 0.2 percent in the fourth quarter after steady growth in the previous three quarters, while a 0.9 percent rise in imports more than offset the 0.5 percent increase in exports.
The weak fourth-quarter growth was driven mainly by investment, up 0.8 percent, though already slowing from 1.1 percent in the third quarter.
Overall in 2005, the eurozone economy grew by an expected 1.3 percent, down from 2.1 percent in 2004, the data showed.
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