Oct. 7 (Bloomberg) -- Europe’s economy contracted more than estimated in the second quarter as consumer spending, investment and exports were weaker than earlier reported.

Gross domestic product in the 16-nation euro region fell 0.2 percent from the first quarter, when it dropped 2.5 percent, the European Union’s statistics office in Luxembourg said today in publishing final figures on second-quarter GDP. The decline was sharper than the 0.1 percent decrease estimated on Sept. 2.

While the euro-area economy is gathering strength after governments injected billions of euros through tax cuts and spending incentives to fight the worst recession since World War II, the International Monetary Fund projected last week that Europe’s recovery will be “slow and fragile.” Confidence in the economic outlook rose to a one-year high in September and investors also grew more optimistic.

“This report is slightly negative but adds nothing to the big picture,” said Nick Kounis, chief European economist at Fortis Bank Nederland NV in Amsterdam. “The economy very likely returned to growth in the third quarter and a rather moderate recovery is likely to follow in the coming quarters.”

From a year earlier, GDP decreased 4.8 percent in the second quarter, also sharper than the 4.7 percent drop estimated earlier. The economy may expand 0.2 percent in the third quarter and 0.1 percent in the three months through December, the European Commission forecast on Sept. 14.

Stimulus Measures

Governments “need to continue supporting the economy,” Amelia Torres, the spokeswoman for EU Monetary Affairs Commissioner Joaquin Almunia, told reporters in Brussels today. EU finance chiefs last week said the pace of the recovery means stimulus measures probably won’t be withdrawn before 2011.

European government bonds rose and the euro declined against the dollar after the GDP report. The euro was down 0.4 percent at $1.4669 at 2:50 p.m. in London. The yield on the 10- year bund dropped 3 basis points to 3.13 percent.

Investment declined 1.5 percent in the second quarter, compared with the 1.3 percent drop estimated earlier, today’s report showed. Consumer spending rose 0.1 percent, half the increase estimated last month. Exports shrank 1.5 percent in the latest quarter, a sharper drop than the 1.1 percent decline estimated last month. Imports fell 2.9 percent, compared with the 2.8 percent drop estimated earlier.

The world economy is emerging from the deepest slump in more than six decades following interest-rate cuts and $2 trillion of government spending, tax breaks and infrastructure projects. Factory orders in Germany, Europe’s largest economy, rose more than economists forecast in August, data showed today.

German Sales

Bayerische Motoren Werke AG’s German sales increased 3.5 percent in August from a year earlier, the Munich-based automaker said last month. A 5 billion-euro ($7.3 billion) government program to encourage consumers to buy cars ran out of money earlier than projected last month.

The European Central Bank tomorrow may keep its key interest rate at a record low of 1 percent, according to a Bloomberg News survey of economists.

The IMF said on Oct. 3 that monetary policy will “need to remain supportive for the time being” across Europe to bolster an economic recovery. The euro-area economy may shrink 4.4 percent this year before expanding 0.9 percent in 2010, the Washington-based lender forecast.

The ECB will announce its rate decision at 1:45 p.m. in Venice tomorrow. ECB President Jean-Claude Trichet will hold a press conference 45 minutes later.

To contact the reporter on this story: Simone Meier in Dublin at smeier@bloombert.net

Last Updated: October 7, 2009 09:57 EDT