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Euro Nations’ Growth Exceeds Expectations

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<i> From Bloomberg News</i>

The economy of the 11 euro nations expanded by a greater-than-expected 0.5% in the first quarter as companies stepped up investment in plants and machinery, suggesting they expect the pace of growth to accelerate in the months ahead.

“We’ve seen the bottom of the economic cycle and we should see a rebound in the second half of this year,” said Christian de Boissieu, an economic advisor to the Chamber of Commerce and Industry in Paris.

The pace of economic growth in the region, which has a population of 300 million, was the fastest since the third quarter of last year and follows a 0.3% expansion in the last three months of 1998, the European Union’s statistics office reported Thursday, revising higher initial estimates made last month.

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The German economy, which accounts for one-third of the total output of the 11 countries that adopted Europe’s common currency in January, expanded 0.4% in the first quarter of 1999, after a contraction in the previous quarter. The economies of Spain and Italy also picked up steam, boosted by consumer spending and company investment.

Growth worldwide is accelerating, led by an expansion in the U.S. economy. Switzerland, Europe’s most export-dependent economy, said Thursday that its jobless rate fell to a seven-year low of 2.6% in June from 2.7%. And the Bank of England on Thursday held its benchmark interest rate unchanged at 5%, following seven cuts in 10 months, on signs that Europe’s third-largest economy is reviving.

Still, the pace of growth in the euro economies lags that of the U.S., where the Federal Reserve raised interest rates June 30 to keep burgeoning expansion from fueling inflation. The U.S. economy expanded 1.1% in the first three months, twice the rate of the euro countries, Eurostat said.

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And there have been some mixed signals from Germany and Italy, the largest and third-largest economies in the euro region. German unemployment rose in June for a fourth month, and the nation’s business confidence declined in the same month, two reports earlier this week showed.

Growth in the 15-nation EU, which includes the euro countries plus Britain, Denmark, Sweden and Greece, also accelerated to 0.5% in the first quarter, up from a revised 0.3% growth in the final quarter of last year, Eurostat reported.

The growth spurt was due to a 1.1% increase in consumer spending in the euro 11 and the EU 15, as well as higher investment, which rose 1.7% in the euro zone and 1.6% in the EU as a whole.

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