The Japanese economy unexpectedly rose 3.1% in the first quarter, higher than the consensus forecast of 2.5% and up from the revised Q4 figure of 2.6%.

Preliminary Q1 quarterly GDP figures also increased 0.8%, rising above the expected 0.6% forecast and beating the revised Q4 amount of 0.6%.

A Westpac research note highlighted that the major contributors to the surprise GDP jump were net exports (+0.5ppts), personal consumption and expenditure (+0.8%qtr), dwelling investments (+4.6%qtr) and domestic demand.

Preliminary nominal GDP year-on-year came in at 0.4%, up slightly from 0.3% expectation, and improving upon the revised -0.1% figure. The preliminary Q1 GDP deflator year-over-year came in at -1.4%, below the forecasted - 1.5%, and weaker than the prior Q4 result of -1.3%.

Euro zone trade balance unexpectedly fell into negative territory with a trade deficit reading of €2.3 billion in March following a €0.8 billion surplus in February, according to Eurostat. Economists had expected the surplus to strengthen to €2.5 billion. In seasonally adjusted terms, euro zone registered a trade deficit of €2.4 billion following the previous month's €1.6 billion surplus. February's reading was revised down from €2.1 billion.

According to data from Statistics Finland, the producer price index rose 0.7% and 3.6% on a monthly and yearly basis respectively in April. The previous month had recorded producer prices rising 0.2%, month-over-month. Annually, PPI in March increased 3.6%. "Producer prices for manufactured products were pushed up especially by increased prices of oil products from April 2007," Statistics Finland elaborated in a press release. "The rise was curbed by falls in the prices of nickel and electrical products."

According to the National Statistics Institute (ISAT), the Italian total trade deficit increased to €545.0 million. Economists had expected the trade deficit to grow to €860 following the previous month's trade deficit level of €449.0 million. February's deficit reading was revised up from €408.0 million.

Looking at trade with the euro zone, Italy maintained its trade surplus with a reading of €667.0 million, higher than the expected €377.5 million, but lower than the previous month's trade surplus of €864.0 million. February's reading was revised down from €905.0 million.

On Friday, the National Institute for Statistics and Economic Studies (INSEE) announced that the global basic wage rate in France increased 1.1% on a quarterly basis in the first quarter of 2008. The previous quarter had seen wage gains of 0.3%. Economists had expected a wage growth rate of 0.9% quarter-over-quarter.

INSEE also reported that French non-farm payrolls rose 0.2% according to preliminary estimates for Q1, down from the previous quarter's 0.4% increase and the expected 0.3% rise. Q4 2007's reading was revised up from 0.3%.

Also on Friday, Denmark's Nationalbank increased its lending rate and its interest rate for deposit certificates to 4.35% from 4.25%. The Danish central bank also stated that its discount rate and the interest rate on banks' current accounts would stay at 4.00%.

Additionally, Denmark's Nationalbank as well as Sweden's Riksbank and Norges Bank have entered into bilateral swap agreements of the Central Bank of Iceland on Friday. The agreement allows the Icelandic central bank to obtain euros as needed to ensure its financial stability.

The markets also heard from a number of ECB speakers on Thursday night and early Friday morning.

In an interview on Thursday in Vienna, European Central Bank Governing Council member Klaus Liebscher stated that he saw no room for the ECB to reduce interest rates in 2008.

"The current monetary policy stance is very suitable to maintain price stability and to avoid inflation expectations building up," Liebscher said.

Liebscher said that inflation at 3% was "unacceptable" and that the ECB will do what was needed to prevent second-round inflation effects.

European Central Bank Governing Council member Yves Mersch said that, while inflation risks were on the upside, the current ECB rates would help limit prices rises.

"We've said that the current level will help contribute to reaching our medium-term objective," Mersch said in an interview in Vienna late on Thursday.

Some negative news from markets was still expected, Mersch said, but he added that some normalization was returning and that "the beginning of a bottoming out in various market segments" could be seen.

In an interview with Austria's Die Presse, French Finance Minister Christine Lagarde said that strong fluctuations in the currency markets were harming companies in the euro zone, as well as the economy itself.

"I believe that especially volatile foreign-exchange markets with sudden swings, which was recently the case, are hurting our companies and our economy," Lagarde said.

However, Lagarde conceded that the strong euro was helping to dampen the effects of surging oil prices.

On Friday, European Central Bank President Jean-Claude Trichet gave a keynote address at the 9th Brussels Economic Forum organised by the European Commission in Brussels and said there was no room for complacency on inflation.

It is "a necessary condition to sustain economic growth, job creation and social cohesion," Trichet elaborated.

While external shocks may cause deviations in CPI away from the ECB's goal, Trichet emphasized that medium-term price stability needed to be ensured. Trichet also stated that price stability and economic growth went together and that the former was essential for the latter.

Speaking to reporters in Brussels on Friday, European Commissioner on Economic and Monetary Affairs Joaquin Almunia said that external shocks were adding to upside inflation pressures.

"We should avoid fueling inflationary pressures coming from abroad," the commissioner added.

Almunia stated that upside risks to inflation could be seen and suggested that the euro area could see difficulties in the future. However, he did acknowledge the euro zone economy was more resilient than before.

Speaking in Brussels, Belgium on Friday, European Central Bank Governing Council member Erkki Liikanen stated that financial markets were suffering from bipolar tendencies and were contributing to uncertainty instead of growth.

Liikanen, also the Governor of the Bank of Finland, said that rating agencies needed to perform better and, while risk could not fully be eliminated, market deregulation would be helpful for growth, adding that protected sectors rarely develop properly.

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