Eurozone growth slows to a crawl

Duisenberg: Action will be co-ordinated with other central banks

Growth in the eurozone has slowed to a crawl, with the likelihood of a sustained slowdown heightened by this week's terrorist attacks on the US, gurus have warned.

According to Eurostat, the European Commission's statistical office, economic output in the 12-country zone grew by just 0.1% in the three months to June this year.

The figures compares with a 0.5% gain in the first quarter of the year.

On an annual basis, eurozone economic growth, or GDP, slowed to 1.7% from 2.4%.

The report follows a series of figures from key eurozone states indicating the extent to which economic troubles worldwide have hit Europe.

No rate cut - yet

The figures were released shortly before the European Central Bank decided to keep eurozone interest rates at 4.25%.

While some observers had called for a cut in rates to help the global economy deal with the shock delivered by the World Trade Center attack, the ECB said it was focusing on support efforts being drawn up with other major central banks.

Wim Duisenberg, the ECB's president, said yesterday that a unilateral cut at today's scheduled meeting could indicate panic rather than strategy.

"It was very unlikely they would cut today, that would have been too emotional," said Elwin de Groot at Fortis Bank in Amsterdam.

A cut would have risked stoking inflation which remains above ECB targets, he added.

But Hann-Ju Ho, at Stone McCarthy in London, was among those predicting that the GDP data raised hopes of a rate cut in the near future.

" We think [Mr Duisenberg] has left the door open for an interest rate cut at the next meeting on September 27 by 0.25%."

Looking forward

Most analysts had predicted that the April-to-June quarter would mark the low point in eurozone GDP in the current downturn cycle.

The figures are "no real big surprise", said Gwyn Hacche, economist at HSBC in London.

"I suppose there is some relief that the eurozone did not see negative growth.

"GDP growth in the third quarter will be similar to that in the second, but the longer lead indicators point to a recovery at the turn of the year."

But in the wake of Tuesday's tragic events on the other side of the Atlantic, the main focus of attention is the months ahead.

"What is far more interesting is the leading indicators coming up in the next few weeks and what impact the attacks on the US will have on the economy," said Volker Nitsch, from Bankgesellschaft in Berlin.

"That is the basic issue... what the outlook will be for the fourth quarter and whether the economic upturn we still expect for the eurozone will be delayed and for how long."