Major Market Mover: EU Growth Continues…

Growth in the 15-nation economy remained strong in the first quarter of 2008 supported by strong growth in the area's biggest economy Germany, but inflation remained high in the area to support the ECB Hawkish stance as they have set taming inflation to be their highest priority…

The German economy which counts for nearly 1/3 of all the area's economy grew over the fastest pace in 12 years by an impressive 1.5 percent in the first quarter to help the 15-nation economy to grow over 0.7 percent in the first three months of 2008, economists were waiting for GDP to show growth of only 0.5%.

While over an annualized pace, the Eu-15 economy grew by 2.2% also topping median estimates of 1.9% and unchanged from the previous estimate, as France also helped the Euro Zone economy alongside Germany, the French economy grew over the quarter by 0.6% after growing by 0.3% during the last three months of 2007. The Spanish economy however continued to suffer as the economy grew only by 0.3% in the first quarter to mark the weakest pace in eight years dropping from the previous 0.8% growth in the fourth quarter of 2007.

The ECB seems to be determined in their fight against inflation, inflation in the Euro Zone rose 0.3% during the quarter inline with median estimates, while compared with a year earlier inflation rose 3.3% inline with median estimates and down from the previous 3.6%, yet core inflation unexpectedly dropped to 1.6 percent from the previous and expected rise of 2.0%.

The ongoing rise in food and energy prices are both the main reasons for the ECB Hawkish still stance along with fears of wage raises and their effects on inflation in the area, the ECB maintained their interest rates steady at 4.00 percent in their last meeting, stressing how controlling rising inflation remained their main priority.

But market participants still expect the EU economy to start slowing down during the second half of this year and accordingly they expect the ECB to change their inflation focused policies into growth, expectations are still mounting that the ECB will be forced into cutting rates later this year…

The aftermath of the worst financial crisis to hit the U.S since the Great Depression in the United States still haven't affected the Euro Zone deeply, as seemingly they managed to find alternative demand represented by emerging markets especially those in south east Asia, those countries at the same time are mainly blamed for the ongoing rise in food and energy prices alongside China, India, and Russia.

Should the Euro Zone continue to report growth markets expectations of rate cuts should fade away, yet we can't ignore the possibility of a slowing economic activity in the area unless domestic spending show resilience to the aftermath of a $125 a barrel for crude oil…

The ECB are most likely to hold their key rates steady for now, as they attempt to assess whether their economic fundamentals were largely affected by a slowing U.S economy and the aftermath of the ongoing financial markets' turmoil or not! But at the same time no one can deny that things are looking good for Mr. Trichet and his colleagues until further developments emerge and provide a clearer picture for the Union's future…

Crown Forex

disclaimer:The above may contain information for investors/traders and is not a recommendation to buy or sell currencies, gold, silver & energies, nor an offer to buy or sell currencies, gold, silver & energies. The information provided is obtained from sources deemed reliable but is not guaranteed as to accuracy or completeness. I am not liable for any losses or damages, monetary or otherwise that result. I recommend that anyone trading currencies, gold, silver & energies should do so with caution and consult with a broker before doing so. Prior performance may not be indicative of future performance. Currencies, gold, silver &energies presented should be considered speculative with a high degree of volatility and risk.