Euro zone data heralds slowdown but ECB talks tough

BRUSSELS (Reuters) - Euro zone economic growth is clearly slowing, data showed on Wednesday, but while the European Central Bank noted this could ease inflationary pressure, it kept its hawkish stance of fighting price rises.

Economists said the remarks by ECB chief Jean-Claude Trichet meant he had no intention of quickly following the Federal Reserve, which surprised markets with a 75 basis point rate cut on Tuesday in a bid to stave off fears of a U.S. recession.

Growth in euro zone services, which generate more than two thirds of the single currency area's gross domestic product, slumped below forecasts this month to a rate not seen in over four years, figures from RBS/NTC showed.

Manufacturing growth remained unchanged from December, a positive surprise. But the survey showed order intake had barely risen, which economists said signalled no more than a modest expansion in industrial output in coming months.

"Today's figures bear out our view that the euro zone economy will see growth below the long-term average this winter," said Christoph Weil, economist at Commerzbank.

"To be more precise, we envisage figures of 0.25 percent for the fourth quarter of 2007 and the first quarter of this year, and 1.5 percent for 2008 as a whole," he said.

Trichet said that despite market turmoil, which is expected to curb growth in the 15 countries using the euro, the ECB would stick to its job of keeping price growth under control.

"In demanding times of significant market correction and turbulences, it is the responsibility of the central bank to solidly anchor inflation expectations to avoid additional volatility in already highly volatile markets," Trichet said.

A Reuters poll showed 45 percent of economists believed the ECB would cut rates by mid-year and 75 percent saw lower rates by the year-end.

The ECB wants to keep inflation just below 2 percent over the medium term, but the annual rate was 3.1 percent in November and December.

Trichet's remarks came as Germany, the euro zone's biggest economy, confirmed it was cutting its growth forecast for this year to 1.7 percent from 2.0 percent, citing expensive oil, a strong euro and market turbulence.

Trichet, speaking in the European Parliament, stuck to the bank's economic outlook that foresees euro zone growth slowing to around 2 percent this year with risks to the downside.

But he also hinted that slower growth ahead could ease upward pressure on prices and therefore on ECB policy.

"At this stage I think we have to look at what's happening in the real economy ... We will see how the real economy develops in the future because it can have an effect on inflation," he said.

FRENCH SPLURGE INSUFFICIENT

Shoppers in No. 2 euro zone economy France splashed out on cars and clothes in December, spending at the fastest rate in over a year, separate data showed. Economists, however, said it was not enough to save the economy from a grim fourth quarter.

Euro zone industrial orders turned out stronger than expected in November, data also showed. But that was mainly thanks to volatile demand for ships, trains and planes, and economists warned not to read too much into the jump.

"Significant doubts remain about the prospects for the euro zone manufacturing sector given the credit crunch, very strong euro, elevated oil prices, higher interest rates and softer growth in key export markets," said Howard Archer, economist at Global Insight.

A slowdown has also hit Britain, the euro zone's biggest trading partner. While the UK economy expanded by 0.6 percent in the fourth quarter, slightly more than expected, it was still the lowest quarterly growth since the third quarter of 2006.

(Additional reporting by UK economics desk, Anna Willard in

Paris and Jonathan Cable in London and Iain Rogers in Berlin;

editing by Dale Hudson)