The German economy which counts for nearly 1/3 of all the area's economy grew over the fastest pace in 12 years by an impressive 1.5 percent in the first quarter to help the 15-nation economy to grow over 0.7 percent in the first three months of 2008, economists were waiting for GDP to show growth of only 0.5%.
While over an annualized pace, the Eu-15 economy grew by 2.2% also topping median estimates of 1.9% and unchanged from the previous estimate, as France also helped the Euro Zone economy alongside Germany, the French economy grew over the quarter by 0.6% after growing by 0.3% during the last three months of 2007. The Spanish economy however continued to suffer as the economy grew only by 0.3% in the first quarter to mark the weakest pace in eight years dropping from the previous 0.8% growth in the fourth quarter of 2007.
The ECB seems to be determined in their fight against inflation, inflation in the Euro Zone rose 0.3% during the quarter inline with median estimates, while compared with a year earlier inflation rose 3.3% inline with median estimates and down from the previous 3.6%, yet core inflation unexpectedly dropped to 1.6 percent from the previous and expected rise of 2.0%.
The ongoing rise in food and energy prices are both the main reasons for the ECB Hawkish still stance along with fears of wage raises and their effects on inflation in the area, the ECB maintained their interest rates steady at 4.00 percent in their last meeting, stressing how controlling rising inflation remained their main priority.
But market participants still expect the EU economy to start slowing down during the second half of this year and accordingly they expect the ECB to change their inflation focused policies into growth, expectations are still mounting that the ECB will be forced into cutting rates later this year