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EU Outpaces US as it Reaps Reward of Risk Aversion
Agencies
Published in The Saudi Gazette on 07 - 03 - 2008

Claude Trichet's European economy may be reaping the rewards of risk aversion.
As the USteeters on the brink of a recession after the end of a five-year housing boom, growth in the 15 nations that share the euro is poised to outpace the American economy for a second straight year.
The region's resilience lets Trichet focus on fighting inflation instead of cutting interest rates. Because Europeans save more than Americans and splurge less on houses and stocks, the continent is better placed to withstand the global credit squeeze without the need for lower borrowing costs.
“To be thrifty is a good thing and definitely a plus for the European economy in this tough period,” said Jean-Michel Six, chief European economist at Standard & Poor's in London. “The attitude to debt and credit is clearly very different between the US and Europe.''
US growth will slow to 1.5 percent this year from 2.2 percent in 2007, according to the International Monetary Fund. The Washington-based fund forecasts the euro-area economy will expand 1.6 percent after 2.6 percent last year.
While that has pushed the euro to a record against the dollar, German companies have compensated by improving efficiency and reducing labor costs. Adidas AG, the world's second-largest sporting-goods maker, reported a 63 percent jump in fourth-quarter profit yesterday, and sports-car maker Porsche SE said Tuesday that first-half profit rose 44 percent.
“We are seeing the best performance in years despite the exchange rates,” ECB council member Nout Wellink said on Feb. 27.
Growth in Europe's service industries accelerated in February, unemployment fell to the lowest since records began in 1993 and business confidence in Germany, the region's largest economy, unexpectedly rose for a second month.
The economy's performance will allow the ECB to keep its benchmark rate at a six-year high of 4 percent today, said all 54 economists surveyed by Bloomberg News. The ECB announces its decision at 1:45 p.m. in Frankfurt and Trichet, 65, briefs reporters 45 minutes later. Inflation is running at 3.2 percent, the fastest since the euro's debut in 1999.
The ECB's inflation-fighting zeal contrasts with the growth-oriented policy of the Federal Reserve. The Fed has cut its key rate by 2.25 percentage points as the US economy reels from the worst housing recession in a quarter century. The slump has made banks reluctant to lend and caused credit markets to seize up in August.
US manufacturing shrank at the fastest pace in almost five years last month and in January US home sales fell to the lowest level since records began.
The euro area isn't completely immune. __


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