A strong German expansion boosted euro zone economic growth more than expected in the first quarter and inflation eased in April, a mix that is likely to keep European Central Bank interest rates on hold.
Gross domestic product in the 15 countries using the euro rose 0.7 per cent in the January-March period against the previous quarter and gained 2.2 per cent year-on-year, the European Union statistics office estimated today.
But the good growth is unlikely to last as rising energy and food prices are cutting households' purchasing power and the euro's strength is hurting exports, economists said.
Also global demand is easing as the world economy slows and the impact on the real economy of the global credit crunch will soon become more apparent, they said.
The European Commission has forecast euro zone growth will slow to 1.7 per cent this year from 2.6 per cent in 2007.
Euro zone inflation, which the ECB wants to be just below 2 per cent, eased in April to 3.3 per cent year-on-year from an all-time peak of 3.6 per cent in March, separate Eurostat data showed.
Monthly inflation in April was 0.3 per cent, fuelled mainly by a 1 per cent increase in energy prices and a 0.5 per cent rise in the cost of food, alcohol and tobacco.
Economists said the ECB was likely to be relieved about the slowing inflation, especially as the core measure, which strips out volatile food and energy prices, fell with the headline number.
Core inflation, which does not include unprocessed food and energy, came to 0.2 per cent month-on-month and 2.4 per cent year-on-year, down from 2.7 per cent in March.