Eurozone economy accelerates thanks to German 'thunderbolt'

Brussels

EUROZONE economic growth accelerated unexpectedly in the final quarter of 2014 as the bloc's largest member, Germany, expanded at more than twice the expected rate.

A preliminary estimate showed that the economy of the 18 countries sharing the euro expanded by 0.3 per cent between October and December compared with the previous three months, the European Union's statistics office Eurostat said on Friday.

A Reuters poll of 51 economists had forecast a 0.2 per cent expansion, the same rate as in the third quarter.

Year-on-year, eurozone growth was 0.9 per cent in the fourth quarter, also 0.1 percentage point higher than expected.

The eurozone's biggest economy, Germany was a clear outperformer, growing by 0.7 per cent in the quarter, far surpassing expectations of a 0.3 per cent rise.

It marked a return to solid expansion in Germany after two quarters close to zero, boosting the growth rate for the whole of last year to 1.6 per cent. Domestic demand lifted Germany out of its mid-year lull and allowed it to achieve 2014 growth of 1.6 per cent.

The Statistics Office said that a significant pick-up in household spending had helped overcome the summer slowdown. "This is a thunderbolt," UniCredit economist Andreas Rees said. "Some spoke of possible recession after the summer but instead Germany rebounded. The fact that the growth comes mainly from the domestic economy gives strong grounds for optimism."

France could not keep pace, growing by just 0.1 per cent, meaning that the eurozone's second largest economy advanced by just 0.4 per cent across the whole of 2014. Italy fared even worse.

"It's obviously still too weak, but the conditions are ripe to permit a cleaner start of activity in 2015," said French finance minister Michel Sapin, adding that business leaders were already beginning to increase investment.

On Monday, France's central bank predicted first quarter growth of 0.4 per cent, led by a rise in industrial production and a slight improvement in services activity.

With Greece's place in the eurozone again uncertain, there is plenty of turbulence for the currency bloc to contend with. Reuters