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Wednesday, 29 May, 2002, 14:49 GMT 15:49 UK
EU economy strengthens
French football players
French confidence takes off
A sharp rise in French business confidence and higher than expected growth in Spain have boosted hopes of an economic rebound in Europe.

A closely watched barometer of French business confidence leapt to an 11-month high in May, France's official statistics agency INSEE said on Wednesday.

And in Spain, official figures showed that the country's economic growth slowed to an annual rate of 2% during the first three months of the year, from 2.3% in the final quarter of 2001.

But the figure came in ahead of the 1.9% growth rate predicted by economists.

"The worst has passed... The Spanish economy has touched bottom and is clearly going to improve," economy secretary Jose Folgado said.

Bouncing back?

The French and Spanish figures follow a higher than expected increase in business confidence in Germany, Europe's economic powerhouse, earlier this week.

And last week, France's INSEE said the country's economy had grown by an unexpectedly high 0.4% during the January to March period.

Economists in France warned that a flat reading for new business orders suggested that the economy had yet to feel the benefits of increased export demand, but were optimistic nonetheless.

"Having said that, the industrial recovery... will be sufficient to deliver GDP growth of 1.5% in 2002 and 2.9% in 2003," said Marc Touati of Natexis Banques Populaires.

Shoppers uncertain

Spanish economists also urged caution, pointing to volatile consumer spending during the first three months of the year.

"It's still unclear where the economy is going, the international context will play a vital role," said Ana Garcia, an economist at Caja Madrid bank.

But Gwyn Haache at HSBC bank in London said Spain remained "the outperformer of the five largest eurozone countries" during the January to March period.

Recent signs of a turnaround in the major eurozone economies make it more likely that the European Central Bank will raise interest rates, currently at a low 3.25%, later in the year.

The ECB left rates on hold at its most recent meeting on 2 May, citing volatile oil prices and a burgeoning US current account deficit.

See also:

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