Feb. 13 (Bloomberg) -- The $9 trillion economy of the dozen euro nations probably expanded 0.4 percent in fourth quarter, the same pace as in the previous three months, as global growth softened the impact of the euro's appreciation, a survey of economists showed. The economy shrank 0.1 percent in the second quarter from first three months. From a year ago, gross domestic product, the value of all goods and services, probably grew 0.7 percent, according to a Bloomberg News survey of 32 economists. The European Union's statistics office releases its estimate at noon.
``We can take some comfort from the fact that things aren't deteriorating,'' said Daragh Maher, an economist at ING Bank NV in London. ``The risk going forward is that growth may falter due to the strong euro.'' U.S. and Asian growth helped Europe's economy recover toward the end of last year from a second-quarter contraction. As consumer spending struggles to pick up, the euro region's economy is susceptible to the effect of the euro's 20 percent increase against the dollar in the past year on exporters. The stronger currency has made European products more expensive abroad and hurt earnings of companies such as Volkswagen AG and Alcatel SA. The euro rose to $1.2899 last month, the highest since its introduction five years ago, and was trading at $1.2813 at 10:55 a.m. in Brussels.
Mixed Performances
Performance is mixed among the region's three largest economies. Italy's economy stalled in the final three months of last year after emerging from a recession in the third quarter, Rome-based statistics office Istat said today. Germany's economy grew a less-than-expected 0.2 percent in the fourth quarter, while growth in France reached 0.5 percent, the fastest pace in six quarters, reports yesterday showed. At noon, the European Commission will also release its forecast for euro-region growth in the first and second quarters. In its last forecast on Jan. 15, the commission predicted quarter- on-quarter growth of between 0.3 and 0.7 percent in the first three months of this year and the fourth quarter of 2003. Companies are returning to profit as the euro area builds on last year's decade-low growth of 0.4 percent. France Telecom SA, Europe's No. 2 phone company, had a full-year profit after two years of losses. Royal Philips Electronics NV, Europe's largest consumer-electronics maker, posted a fourth-quarter profit.
`Vulnerable' Europe
A recovery in neighboring countries allowed the Dutch economy to grow again after failing to expand for a year. The economy expanded 0.3 percent in the three months through December, a government report showed yesterday. ``Europe is vulnerable,'' said Trevor Williams, an economist at Lloyds TSB Group Plc. ``It's vulnerable to what happens to the euro, and it's vulnerable to the U.S. and Asian economies.''
Investors' expectations that the U.S. economy will lift global demand and corporate products has helped European benchmarks gain more than 43 percent since an 11-month rally began in March. The Dow Jones Stoxx 50 Index fell 0.4 percent yesterday to 2719.28. The U.S. economy may expand this year at the strongest pace since 1984, pushing the unemployment rate lower, Federal Reserve Chairman Alan Greenspan said Wednesday. China's industrial production grew at a record pace last month.
Consumers Hesitate
Europe's recovery is reliant on exports as household spending, which accounts for more than half of the economy, continues to stagnate. ``Consumers are not yet contributing to growth,'' said Holger Schmieding, co-head of European economics at Bank of America in London. ``In the euro area, they are typically late'' because companies wait until an economic recovery has taken hold before resuming hiring. German retail sales fell for a second month in December, and unemployment rose in January for the first time since since May. French household spending grew in the fourth quarter at half the pace of the previous three months, Insee said last month.
European Central Bank policy makers have said the conditions are in place for a pickup in domestic demand and that accelerating global growth is making up for a loss in competitiveness resulting from the euro's appreciation. Policy makers last Thursday left the main lending rate unchanged at a six-decade low of 2 percent and investors increasingly expects borrowing costs to remain unchanged at the next meeting on March 4, interest rate futures contracts show. The yield on a three-month contract for June settlement was 2.05 percent at 8:10 p.m. in Brussels, 18 basis points lower than at the beginning of the year. The current three-month rate is 2.07 percent. ``The ECB would be more likely to cut rates if the euro continues to appreciate,'' said Williams. ``I think we will go through the $1.30 level before the end of March.''//www.bloomberg.com