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German, French economies slow

Expansion in the euro area’s two largest economies cooled in the Q4, marking the start of a slowdown that may deepen this year.

Gross domestic product in Germany, Europe’s biggest economy, rose 0.3% from the Q3, when it increased 0.7%, the Federal Statistics Office in Wiesbaden. Expansion in France also eased to 0.3%, from 0.8%. Europe’s expansion is losing momentum as a surge in the euro against the dollar makes exports less competitive abroad just as the US economy hovers near a recession and households grapple with faster inflation. The slowdown prompted the European Central Bank to reverse its interest-rate stance last week, while both executives and policy makers say the outlook is “uncertain.” “Data not only signal a sharp deceleration but also suggest that the weakness was broad-based,” said Aurelio Maccario, an economist at Unicredit MIB in Milan. “Below-trend expansion won’t be temporary, and the ECB will need to start an easing cycle in June.” said yesterday.

In Spain, economic growth unexpectedly accelerated in the fourth quarter to 0.8% from 0.7%, according to separate figures yesterday. The euro-area economy probably grew 0.3% in the Q4, down from 0.8% in the previous three months, according to the median of 31 economists in a Bloomberg News survey. Borrowing costs for consumers and companies jumped last year as BNP Paribas SA and other European banks ran up losses on investments tied to US mortgages. As the US economy cools the Federal Reserve has slashed interest rates. While the ECB has yet to follow suit, President Jean-Claude Trichet said last week there is an “unusually high level of uncertainty” and signaled he may be open to cutting interest rates. (China Daily)