Euro-area growth accelerates on fuel from German surge

A euro sign sculpture in front of the former European Central Bank headquarters in Frankfurt. Photo: Bloomberg file

Brussels: The euro-area economy picked up momentum at the end of last year, with Germany reasserting itself as the driver of growth, offsetting weakness in Greece and Italy.

Gross domestic product (GDP) rose 0.3 per cent in the fourth quarter after expanding 0.2 percent in the previous three months, the European Union's statistics office in Luxembourg said on Friday. Analysts surveyed by Bloomberg News predicted growth of 0.2 per cent. The Greek economy unexpectedly shrank 0.2 per cent.

While the currency bloc's economy is overcoming its longest-ever slump, falling consumer prices and the rise to power of an anti-austerity party in Greece have increased the risks to growth. To avert deflation in a region where consumer spending is bolstering the recovery, European Central Bank President (ECB) Mario Draghi announced a 1.1 trillion-euro ($1.3 trillion) quantitative-easing package that has already pushed down bond yields and the single currency.

"For the first time in two years, we can say that the region is going for solid growth," said Anna Maria Grimaldi, an economist at Intesa Sanpaolo in Milan. "The euro area is supported by the very strong tailwinds of the fall of the euro, the fall of oil prices and the fall of interest rates sparked by ECB QE."

Record DAX
The euro remained higher after the report and traded at $1.1413 at 12:10 p.m. Frankfurt time. Germany's benchmark DAX index, which broke through 11,000 for the first time earlier on Friday, was up 0.5 per cent.

The German economy, the region's largest, expanded 0.7 per cent in the fourth quarter, more than twice as much as forecast, while French growth slowed in line with economists projections. The Greek economy shrank after three quarters of growth, and Italy's stagnated after two consecutive quarters of contraction. Growth in Portugal and the Netherlands was 0.5 per cent, more than analysts anticipated.
Spain, the euro area's fourth-largest economy, reported on January 30 that its economy expanded at the fastest pace in seven years in the fourth quarter, with GDP rising 0.7 per cent.

In the euro area, "the bulk of fourth-quarter GDP growth is likely due to domestic demand, with private consumption growing considerably again," said Evelyn Herrmann, an economist at BNP Paribas SA in London.

"Further consumption-growth acceleration can be expected in early 2015. Investment, meanwhile, is unlikely to have moved much in the fourth quarter," the economist further added.

Raising forecasts
The European Commission raised its euro-area growth forecasts on February 5 while lowering the inflation outlook, citing the lower cost of crude oil and a weaker euro. It sees expansion of 1.3 per cent in 2015 and 1.9 per cent next year, while consumer prices will fall 0.1 per cent this year before rising 1.3 per cent in 2016.

"Recent declines in oil prices have strengthened the basis for the economic recovery to gain momentum," Draghi said on January 22 after he pledged monthly asset purchases of 60 billion euros. "However, the euro-area recovery is likely to continue to be dampened by high unemployment, sizeable unutilised capacity, and the necessary balance-sheet adjustments in the public and private sectors."