Euro Zone First-Quarter GDP Growth Slows, Jobless at New Low

Euro zone quarterly economic growth slowed as expected at the start of the year as consumer demand contracted and export growth plunged, data from European Union statistics office Eurostat showed on Friday.

Eurostat also said euro zone unemployment fell to a new seasonally adjusted record low of 7.1% in April from 7.2% in March.

Eurostat confirmed its earlier estimate that gross domestic product in the 13 countries using the euro rose 0.6% in the January-March period against the previous quarter, when it rose 0.9%. Year-on-year, first-quarter GDP rose 3.0%.

The expansion was driven mainly by continued strong investment and a rebound in inventories depleted at the end of 2006. This helped offset a 0.1% contraction in household consumption and a negative contribution from trade.

Economists had expected the first-quarter growth slowdown because of a three-point rise in value-added tax in the euro zone's biggest economy, Germany, which was bound to dampen consumer demand.

The European Central Bank and the European Commission expect the economy to continue to grow robustly at around 2.5-2.6% this year after a 2.7% expansion last year.

To counter medium-term inflationary pressures from fast credit growth and the contracting labor market, which could boost wages, the ECB has signaled it would raise interest rates by 25 basis points to 4.0% next week.

Markets expect the bank to raise rates once or twice more this year by 25 basis points each time.

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