The Federal Statistics Office said on Thursday gross domestic product grew 2.8 per cent year-on-year in the third quarter and by 0.9 per cent from the previous quarter.

The growth accelerated from the second quarter when revised data showed GDP holding stable against the first quarter and growing by 1.6 per cent year-on-year, exceeding economists' expectations.

Ten economists polled by Reuters earlier this week predicted on average that third-quarter GDP grew 2.6 per cent year-on-year and 0.65 per cent against the second quarter.

But the stronger-than-anticipated data did not change analysts' expectations that the emerging markets crisis could almost wipe out growth in the final quarter of the year.

"A rebound in the third quarter was anticipated, but it was a bit higher thanexpected. It is good news but we should put stress on the fourth quarter now, which will be weaker," Hans-Juergen Meltzer of Deutsche Bank Research told Reuters Television.

He forecast GDP growth for the whole of 1998 at 2.8 per cent.

The economists polled by Reuters predicted growth in 1999 to slow to 2.0 per cent on average from about 2.7 per cent this year. Despite that prospect, analysts do not expect the Bundesbank to announce a rate cut.

Economists said the strong third quarter expansion reflected a relatively limited impact from the emerging markets turmoil and an upturn from the sluggish second quarter, when data was distorted by a rise in value-added tax to 16 per cent from 15 on April 1.

The first quarter was boosted by purchases brought forward to avoid the tax increase, and the second quarter experienced a slowdown as a result.

"Both in private consumption and investments we've had an effect of catching up after a (slow) second quarter. We had also a positive correction in theconstruction industry," said Eckhard Schulte of IBJ Bank in Frankfurt.

The GDP data showed the third-quarter expansion driven mainly by capital investment, which grew 8.9 per cent year-on-year, private consumption, up 3.0 per cent, and exports, which grew by 3.3 per cent.

Building investment was weaker by 5.7 per cent, while growth in public consumption and exports lagged the overall pace of expansion, growing by 1.1 per cent and 1.6 per cent respectively.

Analysts expected exports, which managed to hold out surprisingly well in the third quarter, to be particularly hard hit in the last months of the year and early in 1999 as the reduced demand from Asia and elsewhere finally filtered into the economy.

"Now we must look to the future, we had relatively strong growth for the year, but all indicators show that the fourth quarter and also the first quarter next year will come weaker," said Norbert Braems of Sal Oppenheim in Cologne.

Analysts cited leading sentiment indicators such as the Ifo institutebusiness climate index, Purchasing Managers' Index and services index all pointing to a sharp slowdown.

The third quarter data would have little bearing on the European interest rate outlook, they said.

"Looking ahead the European Central Bank will ask itself whether we will have next year a stabilisation after slowdown or further decline in growth. And the answer will determine whether we will have a rate cut or, perhaps more than one rate cut," Schulte said.