Economic growth in 12 European Union countries in the first quarter hardly accelerated, as the euro's gain against the dollar hurt exports and unemployment deterred consumer spending, a survey of economists shows.

Gross domestic product, the value of all goods and services, may have expanded 0.4 per cent, little changed from the 0.3 per cent rate of the fourth quarter, says the median forecast of 39 economists surveyed by Bloomberg News.

A first estimate of growth will be released by the EU's statistics office this Friday after reports from individual countries earlier in the week.

The euro's increase to US$1.2930 on February 18, the highest point since its inception in 1999, reduced the value of sales abroad for companies including Total SA, while concern about job losses discouraged households from spending.

The euro has dropped 8 per cent since then as evidence of quickening US growth and expectations of higher interest rates are luring investors back to the dollar.

"We're confident about the soft rebound scenario, especially because the euro has stabilized," said Anne Beaudu, an economist at Credit Agricole SA in Paris.

"But we're not optimistic because domestic growth is still weak. It is as if the European economy has missed the train."

Economic growth of 0.4 per cent in the first quarter would be less than half the 1 per cent in the US economy, the world's largest. In Japan, the second-largest economy, gross domestic product probably grew 0.9 per cent in the same period, according to the median of 13 forecast. Japan reports GDP on May 18.

Stocks in Europe and Asia slumped yesterday on concern the US Federal Reserve may raise its benchmark interest rate next month.

The Dow Jones Stoxx 50 Index fell 1.9 per cent to 2674.05 at 10:19 am yesterday in Frankfurt. The dollar surged to a seven-month high against the yen and rose to US$1.1858 from US$1.1883 against the euro.

The pace of expansion in the euro region has been curbed by the performance of Germany, Europe's largest economy, and Italy, the third largest of the 12 nations. Italy is forecast by the International Monetary Fund to be the slowest-growing economy among the Group of Seven nations this year.

The German economy may have grown 0.3 per cent in the first quarter, little changed from the 0.2 per cent expansion mustered in the fourth quarter, according to the median forecast of 22 economists surveyed. Italy probably expanded 0.2 per cent, after growth ground to a halt in the fourth quarter, a separate survey of 30 economists showed.

Underlining the fragile state of Germany's recovery, industrial production slumped 2.3 per cent in March from February, factory orders dropped 0.7 per cent the same month and the nation's unemployment rate rose to 10.5 per cent in April.

The Bundesbank last month estimated first-quarter growth was probably little changed at about 0.25 per cent.

In France, the second-biggest euro region economy, growth probably exceeded that of Germany and Italy for a third quarter.

The French economy may have grown 0.5 per cent in the first three months after expansion of 0.7 per cent in the previous quarter, according to the median of 31 economist predictions. France will report a first estimate of GDP on Wednesday. Companies in France probably increased industrial production for a second month in three in March, a survey of economists showed. That report was to be released today at 8:45 a.m. The country probably posted a trade surplus in March after a deficit in the previous month, a similar survey showed.

German exports probably increased for the fourth month in five in March, gaining 1.1 per cent from February, when they declined 2.5 per cent, according to the median forecast of six economists surveyed. The statistics office is due to release the trade report today at 8 a.m.

Households have been less optimistic than companies about the economic outlook, with the euro region's unemployment rate stuck at 8.8 per cent for 13 months. Retail sales fell 0.2 per cent in March from February, the second monthly decline.

Government measures to loosen labour market rules, such as Germany's move to make it easier for companies to fire workers, coupled with increased healthcare costs, have weighed on consumer spending.

European Union budget deficit limits restrict governments' ability to boost consumer spending with tax cuts and increased investment.

Both France and Germany already risk breaching the EU's 3 per cent deficit-to-gross domestic product ceiling for a fourth year in 2005. German tax receipts this year may fall 7.5 billion euros (US$8.9 billion) short of the level estimated last November, a government official said.

Industry surveys for April suggest economic growth may pick up in the second quarter, helped in part by the euro's retreat against the dollar.

Euro-area executives were the most optimistic in three years and the expansion of manufacturing and service industries accelerated the same month amid signs of a strengthening global recovery.

European Central Bank policy makers have said borrowing costs are low enough to spur economic growth and that it is up to governments to ease labour-and product-market regulation to make the region's economy more competitive.

(China Daily 05/11/2004 page12)