Sept. 9 (Bloomberg) -- Europe's economy probably shrank in the three months through June, the second quarterly contraction since the euro currency's birth in 1999, as Germany and Italy slipped into recession, a survey of economists showed. The $8 trillion economy of the dozen nations sharing the euro contracted 0.1 percent, according to the median forecast of 21 economists surveyed by Bloomberg News. An official at the European Union statistics office said last month an Aug. 14 estimate of zero growth would have to be revised down after France's economy shrank more than forecast in the second quarter. The European Central Bank's interest rate cuts, the euro's 7 percent drop against the dollar since May and an accelerating U.S. economy are fostering a recovery, recent indicators show. The services industry grew in August and business confidence in Germany, the region's largest economy, rose to a 14-month high.
``There are tentative signs of a recovery, though its not going to be that meaningful just yet,'' said Trevor Williams, an economists at Lloyds TSB Group Plc in London. ``It won't be until the fourth quarter of next year, or 2005, before the euro zone will reach its average, long-run growth rate.'' Eurostat, the EU's statistics office, will publish a second estimate for second-quarter growth at noon in Luxembourg. The European Commission will also update its third and fourth quarter forecasts. Last month, it said growth would accelerate to between 0.2 percent and 0.6 percent in the fourth quarter.
Italian Confidence
More signs of a recovery may come in a report on Italian business confidence today. Confidence probably rose in August from a 20-month low, with an index based on a survey of 4,000 executives rising to 88.5 from 87.1 in July, according to the median forecast of eight economists surveyed by Bloomberg News. The report will be released at 9:30 a.m. in Rome. ``Economic conditions have improved over the most recent period,'' said Bank of France Governor Jean-Claude Trichet after meeting other G-10 central bankers in Basel, Switzerland, yesterday. In the U.S., the recovery is ``likely to materialize in a way that is undoubtedly significant.'' Growth in the U.S. economy, destination of about a fifth of Europe's exports, accelerated to an annualized rate of 3.1 percent in the second quarter. U.S. manufacturing grew last month at the strongest pace in eight months. Japan, the world's second-largest economy, is also gathering pace, expanding an annualized 2.3 percent in that period. Porsche Sales
Shares of exporters have risen on optimism the weaker euro will help them benefit from a U.S. recovery. Siemens AG, Germany's largest engineering company, has paced gains in the Dow Jones Stoxx 50, increasing 34 percent in the past three months. DaimlerChrysler AG, the world's fifth-largest carmaker, is up 32 percent in the same period. Porsche AG, the maker of the 911 sports car, last week said sales in the U.S. and Canada rose in August, said today sales in the year through July rose 15 percent to 5.6 billion euros ($6.2 billion) and said pretax profit rose ``clearly'' in the period. Stuttgart, Germany-based Porsche said it's optimistic that revenue will increase further this year. Any recovery in Europe will still lag the U.S., said Trichet, who is scheduled to replace Wim Duisenberg as ECB president on Nov. 1. ``There is a pickup in the pipeline that will materialize in 2004.'' Italy, the third largest economy in the euro region, fell into its first recession in more than a decade in the second quarter. Germany and the Netherlands were also in recession in the first half and France's economy contracted 0.3 percent in the three months ended June 30.
Lagging U.S.
The German government plans to lower its prediction for growth this year to 0.5 percent from 0.75 percent, daily newspaper Die Welt reported today, citing unidentified people familiar with the matter. ``Euro land will underperform the U.S. in terms of growth for the foreseeable future,'' Armijn Eikelboom, who helps manage the equivalent of $1.2 billion at Kempen Management in Amsterdam.
The ECB yesterday lowered its internal growth forecasts to 0.4 percent this year and 1.5 percent next. The bank also raised its expectations for inflation, limiting its room to add to the three interest rate reductions of the past three months. In August, inflation rose above the bank's 2 percent limit for the first time in four months. Investors don't expect the ECB to cut rates again this year, interest-rate futures contracts indicate. The yield on the three- month contract for December settlement was at 2.17 percent yesterday, compared with a money market rate of 2.13 percent. //www.bloomberg.com