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European Exports, Investments Spur Economy’s Recovery

European exports surged the most on record and corporate spending rebounded from a two-year slump in the second quarter, fueling the region’s fastest economic expansion in four years.

Exports from the 16-nation euro region jumped 4.4 percent from the first quarter, the biggest gain since data were first compiled in 1995, while corporate spending rose 1.8 percent, ending eight quarters of contraction, the European Union’s statistics office in Luxembourg said today. Gross-domestic- product growth accelerated to 1 percent, in line with an Aug. 13 estimate, from a revised 0.3 percent in the previous quarter.

The economy may struggle to maintain its momentum as governments from Spain to Ireland trim budget deficits just as the global recovery shows signs of weakening. European Central Bank policy makers meeting today in Frankfurt may extend emergency lending measures for banks into 2011 and keep their benchmark interest rate at a record low of 1 percent to bolster a recovery, economists forecast.

“We’re at the peak in terms of quarterly rates with a broadly balanced recovery,” said Carsten Brzeski, an economist at ING Group in Brussels. “It mirrors German GDP with strong exports. The big question is to what extent we’ll be able to carry the dynamic into the current quarter.”

The euro was little changed against the dollar after the report and was at $1.2827 as of 10:23 a.m. in London, up 0.1 percent since yesterday.

Prices Rising

In the year, GDP rose a revised 1.9 percent after increasing 0.8 percent in the first quarter. The statistics office had previously reported a gain of 1.7 percent. Consumer spending rose 0.5 percent from the first quarter, when it advanced 0.2 percent. Imports jumped 4.4 percent while changes in inventories added 0.2 percentage point to growth.

The German economy, Europe’s largest, expanded 2.2 percent in the second quarter, the fastest growth in two decades. French GDP rose 0.6 percent and the Italian economy grew 0.4 percent. In Greece, GDP dropped 1.5 percent.

Companies are already using faster growth to push through higher prices. Producer-price inflation accelerated to 4 percent in July from 3 percent in the previous month, led by higher costs for energy and intermediate goods, the statistics office said in a separate report. That’s the fastest since October 2008. In the month, prices rose 0.2 percent.

An export-led recovery has helped boost earnings at some of the region’s largest companies. Paris-based L’Oreal SA said on Aug. 25 that first-half profit increased 21 percent, helped by Asia and Latin America. Hochtief AG, Germany’s largest builder, last month raised its orders outlook.

‘Clear Slowdown’

The pace of growth may not be maintained, according to European Central Bank President Jean-Claude Trichet, who said last month the second half of 2010 will probably be “much less buoyant” than the quarter through June.

While Europe’s Stoxx 600 Index rose as much as 13 percent since falling to an eight-month low on May 25, it has pared the gain in the past three weeks on concern that the European and U.S. economies will cool. German bonds rose last month, pushing the yield on the 10-year bund to a record low on Aug. 31.

“There’s a clear slowdown in the pipeline,” said Jacques Cailloux, chief European economist at Royal Bank of Scotland Group Plc in London. “The starting point is very strong but if you focus on the engine of growth, which is exports, it peaked in May and has slowed since. It’s a bit of a warning signal that central banks should be very cautious.”

Mixed Picture

In June, the ECB projected the economy to grow around 1 percent this year and 1.2 percent in 2011. Council member Axel Weber said on Aug. 19 there may be a “modest upward revision” to the forecasts. Trichet will announce the new projections at a press conference at 2:30 p.m. in Frankfurt.

Data yesterday showed a mixed picture of the global economy. In the U.K., manufacturing grew the least in nine months in August. China’s purchasing managers’ index rose, a government-backed report showed, while a gauge of U.S. factory activity unexpectedly increased.

Pernod Ricard SA, the maker of Chivas Regal whiskey, today reported full-year profit that missed analysts’ estimates as sales declined in Western Europe and the U.S. Chief Executive Officer Pierre Pringuet said that the U.S. recovery is “slow.”

European governments’ spending cuts and tax increases may limit the pace of economic growth. French consumer confidence remained at the lowest in more than a year in July and retail sales in Germany unexpectedly fell for a second month.

Unilever, the world’s second-largest consumer-goods maker, on Aug. 5 reported revenue growth that missed analysts’ estimates as sales slumped in Western Europe. Unilever CEO Paul Polman said on that day that there will be a “long, slow, protracted” recovery in Europe.

“There is a debate on not just a loss in momentum but some likelihood of renewed recession in the global economy and in some of the major industrialized countries,” ECB’s Weber said last month. “I view that as a bit exaggerated to be honest. The recovery is going to stay on track.”