German economy gets boost from consumer spending as exports rise

[BERLIN] Germany restored its position as Europe's economic powerhouse last quarter as domestic spending surged and trade contributed to growth.

Gross domestic product in the region's largest economy expanded 0.7 per cent in the three months through December, the Federal Statistics Office said today, confirming a Feb 13 estimate. Private consumption climbed 0.8 per cent, capital investment rose 1.2 per cent and exports jumped 1.3 per cent.

"Powerful trickle-down effects from a lower oil price and a weaker euro exchange rate continued to lift the German economy," said Andreas Rees, an economist at UniCredit SpA in Munich. "It is hard not to be reasonably optimistic in Germany these days." Plunging energy costs have been described by Bundesbank President Jens Weidmann as a mini-stimulus that puts more money in consumers' pockets. The decline has also contributed to a negative inflation rate in Germany and the euro area that prompted the European Central Bank to announce quantitative easing, weakening the euro and making German exports more competitive.

Private consumption added 0.4 percentage point to GDP last quarter and net trade added 0.2 percentage point. Capital investment added 0.2 percentage point, driven entirely by construction. Inventories subtracted 0.2 percentage point.

The Bundesbank said last month that the German economy has overcome the "weak phase" it hit early last year as lower oil prices and higher salaries bolster consumption. Real wages increased 1.6 per cent in 2014, the most since data collection started in 2008.

Germany's economic resurgence contrasts with France, which barely grew in the three months through December, and Italy, which stagnated after two consecutive quarters of contraction. The Spanish economy, the euro area's fourth-largest, expanded at the fastest pace in seven years in the fourth quarter, with GDP rising 0.7 per cent.

The euro-area economy expanded 0.3 per cent in the October- December period. While the region is still recovering from its longest-ever recession, growth prospects are clouded by Greece, where a newly elected anti-austerity government is struggling to strike a financing deal with its European counterparts that would prevent a default.

In addition, ECB President Mario Draghi has warned of the risk of a deflationary spiral of falling consumer prices and households postponing spending in the currency bloc. To avert that scenario, he unveiled a 1.1 trillion-euro (US$1.3 trillion) bond-buying programme last month.

The risks for the region's economy "remain on the downside, but should have diminished," Mr Draghi said at a Jan 22 press conference after the announcement.

BLOOMBERG