Rise in German consumer demand propels euro zone to modest growth

The German euro-zone motor has bounced back into life, pulling the bloc’s economy behind it, after notoriously tight-fisted German consumers lifted economic performance by more than twice the expected rate.

Official data for the bloc showed its economy grew by 0.3 per cent between the third and fourth quarters of 2014.

Year-on-year euro-zone growth was 0.9 per cent in the fourth quarter, some 0.1 percentage point higher than expected. Overall in the 28-member European Union, growth was up 0.4 per cent in the final quarter of 2014.

The strong performance was largely thanks to a better-than- expected in the euro’s largest economy, Germany, where fourth quarter growth was 0.7 per cent after two near-zero quarters.

Economic forecasts had expected 0.3 per cent German growth in the last quarter. Instead of the usual economic lift from exports, German growth was up thanks to a significant uptick in domestic demand – helping the country achieve 1.4 per cent growth in 2014.

Apart from Germany, a number of east European countries such as Hungary, Poland and Lithuania experienced strong growth levels, but the EU's largest economies continued to struggle.

Stagnation

The French economy grew just 0.1 per cent between the third and fourth quarters of last year, while Italy, the zone’s third-largest economy, experienced zero growth, though the stagnation suggested the economy could be breaking free of almost three years of contraction.

Responding to the figures, French finance minister Michel Sapin said: "It's clearly still too weak, but the conditions are ripe to permit a cleaner start of activity in 2015."

He added that business leaders were already beginning to increase investment.

Barclays said private consumption was probably the main contributor to the GDP growth, supported by lower oil prices, weak inflation and a “modest improvement” of labour market conditions.

“Looking ahead, the German economy looks set to continue surfing on a wave of economic wellbeing,” said ING bank economist Carsten Brzeski.

“With the strong labour market, wage increases, low energy prices and extremely low interest rates, consumers should continue to spend.”

The data gave a boost to stock markets, which have been shaken by the ongoing impasse over the Greek bailout. Frankfurt’s Dax exchange reached new highs, cracking the 11,000 mark for the first time.

EU economics commissioner Pierre Moscovici said the decline in oil price, depreciating euro and recently-launched quantitative easing programme by the ECB would provide "a welcome shot in the arm for the EU economy".

He noted the mildly improving economic picture would not be enough to significantly lift unemployment: “Economic growth is expected to be insufficient for a marked improvement in employment.”