Eurozone growth hits six-year high of 2.7 per cent in 2006

(BRUSSELS) - The eurozone economy finished 2006 with a bang, growing at its strongest rate in six years and sharply faster than economists' had expected, official EU figures showed on Tuesday.

The eurozone economy grew 2.7 percent in 2006, the fastest rate since 2000 and up sharply from 1.4 percent in 2005, the European Union's Eurostat data agency said in a first estimate.

In the final quarter of 2006, the combined economy of the 12 countries sharing the euro last year -- Slovenia adopted the currency in January -- expanded by 0.9 percent and by 3.3 percent over one year,

The results exceeded private economists' forecasts for growth of 0.5 percent over one quarter and a 12-month rate of 2.9 percent.

The figures showed that growth accelerated in the final quarter of 2006 in all of the eurozone's biggest economies.

"While growth benefited from a major rebound in activity in Italy and robust expansion in Germany, the performance was generally very bright across the region," Global Insight economist Howard Archer said.

"Furthermore, the available evidence from the individual economies indicates that growth was encouragingly broad-based in several countries," he added.

The German economy, the biggest in Europe, beat all growth expectations in 2006, expanding 2.7 percent over the whole year after a particularly strong fourth quarter.

The Italian economy, which has been the eurozone's worst performer in recent years, chalked up growth of 2.0 percent in 2006, the strongest rate since 2000.

The French economy also showed growth of 2.0 percent last year, after bouncing back from a third-quarter slump in the final three months of the year.

Growth was even stronger last year in the European Union as a whole, which Bulgaria and Romania joined at the beginning of January.

Last year, the combined economy of the 25-nation bloc expanded 2.9 percent after chalking up growth of 1.7 percent in 2005.

In the fourth quarter, the EU achieved growth of 0.9 percent and 3.4 percent over 12 months.

Although the European Commission currently projects that the eurozone economy will slow to growth of 2.1 percent this year, Economic and Monetary Affairs Commissioner Joaquin Almunia said last month that the estimate would probably be raised when it updates its forecasts on Friday.

However, in quarterly growth projections made public on Tuesday, the European Union's executive arm estimated the eurozone would keep expanding at a healthy pace.

It estimated that the eurozone would achieve growth of 0.4-0.8 percent in the first three months of this year, 0.4-0.9 percent in the second quarter and 0.3-0.9 in the third quarter.

"Early-2007 should see softening manufacturing activity, but surveys suggest that the service sector remains resilient," Unicredit economists Aurelio Maccario and Marco Valli said in an analysis of the growth data.

"The recovery will likely lose some steam in the first months of the year, but the underlying trend will remain robust, as domestic demand keeps its momentum," they added.

Adding to the eurozone's bright outlook, Eurostat published industrial output figures on Tuesday, showing that industrial production, grew more quickly than expected in December, surging 1.0 percent in December and 4.0 percent over one year.

Global Insight's Archer said that the increasingly rosy outlook for eurozone growth increased already high expectations for the European Central Bank to raise interest rates next month.

"It seems even more of a stone-dead certainty that the ECB will lift interest rates by a further 25 basis points to 3.75 percent in March," he said.