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European economic growth probably accelerated in the first three months of 2008 as construction-led expansion in Germany masked a slowdown in manufacturing and services, a survey of economists shows.

Gross domestic product in the euro area increased 0.5 percent from the previous three months, when it grew 0.4 percent, according to the median of 32 estimates in a Bloomberg News survey. The pace of growth in Germany, Europe's largest economy, probably increased to 0.7 percent in the first quarter from 0.3 percent, according to a separate survey.

The pickup in growth may prove short lived as Europe's economy contends with higher credit costs, the euro's increase to a record against the dollar and oil prices above $125 a barrel. At the same time, the European Central Bank is showing little enthusiasm for cutting interest rates to help growth as it contends with inflation close to a 16-year high.

“There was a lot of noise in the first quarter and one of those things was German construction,'' said Kenneth Wattret, chief euro-area economist at BNP Paribas in London. “Beyond Germany, the numbers are not so encouraging and leading indicators are pointing downward.''

European confidence declined to the lowest in two and a half years in April, while manufacturing growth slowed for a third month. Retail sales fell by a record in March. Euro-area expansion may slow to 0.2 percent in the second quarter, according to BNP forecasts.

`Headwinds'

“You don't have to look far to find the headwinds to economic growth,'' said Wattret, citing the exchange rate, slowing U.S. growth and tighter credit conditions payday loans. “The economy's been slowing gradually since 2006, but now we've hit a tipping point.''

France's Michelin & Cie., the world's second-largest tiremaker, last month cut its full-year profit forecast due to slumping orders and soaring raw-material costs. The price of crude oil in New York has doubled in the last 12 months, reaching a record $126.98 a barrel this week.

While the U.S. Federal Reserve and the Bank of England have lowered rates in the last nine months to support economic growth, euro-area inflation, at a 16-year high in March, has prompted the ECB to leave its key rate unchanged at 4 percent.

“The present monetary-policy stance will contribute to achieving our goal, which is price stability,'' Trichet said in a interview with Sky TG24 in Milan on May 12. He also said the “resilience of the big emerging economies'' will help counter a slowdown in the U.S. economy.

HeidelbergCement AG, Germany's biggest cement maker, said on May 8 that first-quarter sales almost doubled, led by eastern Europe and Asia.

Still, the International Monetary Fund says euro-area growth will slow to 1.4 percent this year from 2.6 percent in 2007.

“First-quarter strength won't be sustained,'' said Aurelio Maccario, an economist at Unicredit MIB in Milan, because there will be “significant payback'' after the surge in construction. “Manufacturing momentum in April has downshifted decisively, and services activity remains lackluster.''

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