German economy grew 1.5% in 2014 as recovery accelerated

[FRANKFURT] Germany's economic growth matched analysts forecasts in 2014, signaling that it overcame a mid-year stagnation to pick up pace in the final quarter.

Gross domestic product rose 1.5 per cent, compared with a 0.1 per cent gain in 2013, the Federal Statistics Office said in Berlin today. Economists forecast an increase of 1.5 per cent, according to the median of 26 estimates in a Bloomberg News survey. The government had a fiscal surplus of 0.4 per cent of GDP in 2014.

Germany, Europe's largest economy, is relying on domestic demand bolstered by record-low unemployment to fuel a recovery after it flirted with recession in the middle of the year. More stimulus may yet come as the European Central Bank considers starting government-bond purchases to fend off the threat of deflation in the euro area.

"Indicators are quite promising, especially consumption is a strong pillar for the German economy," said Andreas Scheuerle, an economist at Dekabank in Frankfurt. "Economic uncertainty has been a drag but prospects are improving. Lower energy prices and the depreciation of the euro help investment." Oil prices have plunged to the weakest since 2009 and the euro has dropped to a nine-year low against the dollar. Bundesbank President Jens Weidmann has argued that the slide in energy costs provides an economic stimulus to companies and households, reducing the need for the ECB to take further action.

Quantitative Easing Policy makers including ECB President Mario Draghi have countered that the drop in crude prices risks entrenching low inflation expectations. The Governing Council will consider a quantitative-easing package in Frankfurt on Jan 22.

German gross domestic product increased just 0.1 per cent in the third quarter as investment declined, and the economy shrank 0.1 per cent in the three months through June. That partly reflects the impact on thousands of companies of European Union sanctions of imposed on Russia because of its involvement in the Ukraine conflict.

Since then, surveys have shown a mixed picture for Germany's economic health. While a measure of manufacturing and services activity unexpectedly rose in December for the first time in three months, the rate of expansion remained sluggish. Gauges of business and investor confidence have rallied.

"The German economy will recover first and more strongly than other euro-zone countries," Andreas Rees, an economist with Unicredit SpA in Frankfurt, said before today's report.

BLOOMBERG