Business Economy Europe

German Growth Surprise Driven by Domestic Demand

(Bloomberg) — German economic growth accelerated at the end of last year while France’s slowed, signaling that the euro-area recovery remained uneven as the European Central Bank prepared to pledge unlimited quantitative easing.

Shoppers carry shopping bags
Shoppers carry shopping bags as they pass illuminated retail stores in the early evening in Berlin. The Bundesbank said last month that the German economy has overcome the “weak phase” it hit early last year, with consumers benefiting from falling oil prices and rising salaries. Photographer: Krisztian Bocsi/Bloomberg

German gross domestic product surged 0.7 percent in the fourth quarter after expanding 0.1 percent in the previous three months, the Federal Statistics Office in Wiesbaden said today. The French economy grew 0.1 percent after 0.3 percent in the July-September period. Analysts surveyed by Bloomberg News predicted fourth-quarter growth of 0.3 percent and 0.1 percent, respectively.

Seven years after the onset of the global economic crisis, the 19-nation euro area is still plagued by falling prices and high unemployment, while a showdown between Greece and its European partners over the country’s debt has rekindled the risk of a euro break up. A slump in oil prices is helping domestic demand and more stimulus is the pipeline from the QE plan by the ECB that has already weakened the euro.

It’s not a story of ‘here comes the boom,’ said Nick Kounis, head of macro and financial-markets research at ABN Amro Bank NV in Amsterdam. But we are starting to see signs of a more convincing recovery.

The euro remained higher after the report and traded at $1.1428 at 9:41 a.m. Frankfurt time. The benchmark DAX index broke through 11,000 for the first time.

Euro-Area GDP

Euro-area GDP probably expanded 0.2 percent last quarter after growing at the same rate in the third, according to a separate survey. That report is due from the European Union’s statistics office in Luxembourg at 11 a.m. today. Italy and Portugal are scheduled to release national figures before then.

The Slovak economy grew 2.4 percent in the fourth quarter from a year ago, and the Dutch recorded an increase in GDP of 0.5 percent from the third quarter.

Spain, the euro-area’s fourth-largest economy, reported on Jan. 30 that its economy expanded at the fastest pace in seven years in the fourth quarter, with GDP rising 0.7 percent from the previous one.

The German economy turned out to be strong in a difficult global economic environment, benefiting especially from a strong domestic demand, Roderich Egeler, president of the national statistics office, said in Berlin on Jan. 15. At the time, the office said GDP increased a quarter of a percent in the fourth quarter and 1.5 percent in 2014.

Domestic Demand

On Friday, it said growth was driven by domestic demand, with exports and imports both rising strongly. Private consumption rose markedly in the fourth quarter, and investment developed positively, driven by a significant increase in construction output. A full data breakdown will be published on Feb. 24.

Germany has retaken its role as economic growth engine in the euro area, said Johannes Mayr, an economist at BayernLB in Munich. High geopolitical uncertainty has hardly had any damping impact in the fourth quarter, although the result could be exaggerated somewhat due to unusually mild weather at the beginning of the winter.

The Bundesbank said last month that the German economy has overcome the weak phase it hit early last year, with consumers benefiting from falling oil prices and rising salaries. Real wages rose 1.6 percent last year, the most since data collection started in 2008.

Foreign Sales

At the same time, solid global demand from the U.S. to China spurred the performance of the country’s export-oriented businesses.

Daimler AG, which vies with fellow German companies BMW AG and Volkswagen AG’s Audi unit to be the world’s largest luxury-car maker, reported a 10 percent increase in fourth-quarter profit. HeidelbergCement AG, the world’s third-biggest cement maker, also reported higher profit that was buoyed by residential construction in North America.

Germany posted a record current-account surplus of 215.3 billion euros ($244 billion) in 2014 that equaled 7.4 percent of GDP.

In France, President Francois Hollande’s government is eyeing a slump in oil prices to stoke consumer spending and a weaker currency to boost exports. Foreign sales surged in the three months through December while household consumption slowed and investment recorded its fourth consecutive quarterly contraction.

Greek Risks

Risks to the economic outlook are fueled by political uncertainty in Greece, whose newly elected government has failed so far to reach an agreement with its European partners on debt reduction, austerity measures and structural reforms. Prime Minister Alexis Tsipras said after a meeting with his European Union peers on Thursday that he sees political will to find a solution.

The Greek economy probably expanded 0.4 percent in the final three months of 2014, according to a separate survey, which would mark the fourth consecutive quarterly expansion after six years of recession.

The outlook for the euro is not so bad, said Stefan Muetze, an economist at Helaba in Frankfurt. It is not just Germany anymore. Spain is almost booming, France is growing. The main factor driving this expansion is increasing consumption all over the euro zone, firstly in Germany of course, but also in Spain and Italy and even France.

To contact the reporter on this story: Alessandro Speciale in Frankfurt at aspeciale@bloomberg.net
To contact the editors responsible for this story: Fergal O’Brien at fobrien@bloomberg.net Jana Randow

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Article from: bloomberg.com

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German Growth Surprise Driven by Domestic Demand

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