Investment drives eurozone GDP growth

Investment drove first quarter eurozone economic growth while household and government consumption also made significant contributions, the latest EU data has shown.

The promising data pointed to an increasingly self-sustaining economic recovery across the 17-member monetary bloc.

EU statistics office Eurostat confirmed its earlier estimate that GDP rose 0.8 per cent quarter-on-quarter in January-March, up from 0.3 per cent in the previous three months.

In year-on-year terms, GDP growth was 2.5 per cent, up from 1.9 per cent in the last three months of 2010.

Tim Ohlenburg, senior economist at the Centre for Economic and Business Researchm said growth in industrial was the main driver for the growth in output.

“Contrary to fears that the shift of production to Asia is limiting growth prospects in the West, evidence that producers of higher-value products are benefiting from growing overseas markets continues to mount,” he said.

“Like trade, transport and communication services, financial services also added 0.4 percentage points to the 2.5 per cent growth rate.”

Eurostat said that after two quarters of no contributions from investment, gross fixed capital formation was responsible for half of the quarter-on-quarter growth.

Government and household spending added 0.2 percentage point each. There was no contribution from inventories while net trade added 0.1 percentage point.

But after the first quarter surge, growth is likely to moderate in the coming quarters, economists said. Separate trade and output figures from Germany on Thursday added to signs that its hitherto robust recovery was easing somewhat.

"We see euro zone growth falling back to around 0.4 per cent quarter-on-quarter for an extended period," said Howard Archer, chief UK economist at IHS Global Insight.

"Fiscal tightening increasingly kicking in, slowly rising interest rates and recurrent sovereign debt tensions are all expected to take a toll on growth."