Eurozone economic growth hits 6-year high

The eurozone clocked its fastest growth since the heady days of the dot.com boom in the second quarter as powerhouses France and Germany enjoyed a burst of strength, official EU data showed Monday.

The 12 nations sharing the euro saw their growth reach 0.9 percent in the second quarter, the strongest rate since the second quarter of 2000, the European Union's Eurostat data agency said in a first estimate.

The figure, which compared with 0.6 percent in the first quarter, also beat forecasts from private economists for growth of 0.7 percent and a European Commission prediction of 0.4-0.8 percent.

Usually the laggard among major economies, the eurozone dashed ahead of both the United States and Japan, which saw growth in the second quarter of 0.6 percent and 0.2 percent respectively, according to Eurostat.

Analysts said the data added weight to arguments for the European Central Bank to keep raising interest rates.

On a 12-month basis, the eurozone booked growth of 2.4 percent, the strongest rate since the first quarter of 2001 and up from 2.0 percent in the first quarter

Eurostat is scheduled to update the figures with more data on August 31 and then again on October 11.

The economy of the 25-nation European Union (EU) also expanded 0.9 percent in the second quarter and 2.6 percent over one year.

Economist Howard Archer with consultancy Global Insight said: "The second-quarter performance was impressive, even allowing for a significant boost to activity stemming from the football World Cup being held in Germany and the generally strong performance of several of the eurozone's teams."

Germany, the biggest-economy in the eurozone, underpinned the eurozone's second-quarter performance with growth of 0.9 percent over one quarter, the fastest rate since the first three months of 2001.

However, growth was even stronger in France, the eurozone's second-biggest economy, which saw quarterly growth of 1.2 percent.

But the eurozone's smaller economies also saw firm growth with the Netherlands reporting a quarterly expansion of 1.0 percent and Spain reporting 0.9 percent.

However, Italy, the third-biggest economy in the eurozone, was a weak spot with quarterly growth of only 0.5 percent.

Looking ahead, the European Commission estimated that eurozone growth would probably start losing steam in the second half of this year, forecasting a rate in a range of 0.5-0.9 percent for the third quarter, 0.4-0.9 for the fourth quarter and 0.2-0.8 percent for the first quarter of 2007.

The European Commission forecast in May that the 12 nations sharing the euro were set to enjoy annual growth this year of 2.1 percent.

Despite the strong showing in the second quarter, economists identified a number of reasons for an expected slowdown later this year.

"We suspect that the second quarter may mark the peak in eurozone growth," said Global Insight's Archer.

"A stronger euro, slowing global growth, very high oil prices, higher interest rates and tighter fiscal policy in several countries (notably Germany and Italy) threaten to exact an increasing toll on eurozone growth going forward."

Despite signs that eurozone growth may have already peaked, some economists said that the robust second-quarter gross domestic product data raised the chances of further increases in eurozone interest rates.

Bank of America economist Holger Schmieding said: "Stronger GDP data make it even more likely than before that the ECB will go beyond the widely anticipated 0.25 percent hike in October and raise rates to 3.5 percent by December," he said.

Earlier this month, the Frankfurt-based central bank raised its benchmark "refi" refinancing rate by a quarter of a percentage point to 3.00 percent.

It was the fourth such increase since December 2005 and the ECB has since reiterated its intention to gradually raise eurozone borrowing costs to keep area-wide inflation in check.