February 14, 2014 / 8:35 AM / 6 years ago

Stronger-than-expected Germany and France nudge up euro zone growth

BRUSSELS (Reuters) - Slightly stronger-than-expected growth in Germany and France pushed the euro zone’s recovery up a gear in the fourth quarter and offered potential for a more robust 2014, albeit with risks.

Data on Friday showed the euro zone economy rose by 0.3 percent in the three month to December compared with the previous quarter. This slightly exceeded market expectations for a 0.2 percent expansion.

The 9.5 trillion euro economy had already emerged in the second quarter from its longest recession since the introduction of the single currency, but record high unemployment, external economic risks, fiscal austerity and low inflation have kept a lid on the rebound.

The EU’s statistics office will publish a detailed breakdown on March 5, but analysts said the fourth-quarter growth was mainly driven by exports and investment.

A positive signal was that for the first time in almost three years all of the six largest euro zone economies recorded quarterly expansions.

Germany, the European’s largest economy, saw its growth accelerating to 0.4 percent on the quarter thanks to a rise in exports and capital investment, up from 0.3 percent in the previous three months.

The French economy expanded by 0.3 percent and statistics office INSEE revised up the third quarter figure to flat from -0.1 percent.

That meant France grew 0.3 percent over the course of last year, more than the government’s estimate of 0.1 percent.

Analysts nonetheless were cautious.

“It is still going to be far from plain sailing for the euro zone in 2014 as a number of significant growth constraints remain,” said Howard Archer, chief European economist at IHS.

Martin van Vliet, an analyst with ING, said a sustained recovery was “not yet assured”.

Italy, now awaiting a new prime minister with Enrico Letta due to resign having been forced out by his own Democratic Party, dragged itself back to growth for the first time since mid-2011.

Its economy expanded marginally by 0.1 percent. Over the whole of 2013, GDP contracted by 1.9 percent, the ISTAT statistics office said.

Italy has been one of the world’s most sluggish economies for more than a decade. Growth has averaged less than zero over the last 12 years. In 2014, the government forecasts growth of 1.1 percent.

The German Statistics Office saw “mixed signals” from the domestic economy, which has driven growth throughout most of the year, with public expenditure stable and private consumption slightly below the level of the previous quarter.

“Capital investment developed positively,” the Statistics Office said. “However, a strong reduction in inventories put the brakes on economic growth.”

The German Economy Ministry said on Wednesday it expected gross domestic product (GDP) growth of 1.8 percent in 2014 - more than four times faster than in 2013 as a whole.

“The rise in capital investment is very positive and signals that the German economy is starting the new year well,” said Johannes Mayr, an economist at Bayern LB.


The European Central Bank kept policy steady earlier this month with President Mario Draghi declaring more information was needed before deciding on any action.

He cited fresh ECB staff forecasts which will be ready for the March policy meeting and the fourth quarter GDP numbers.

Spain has already reported fourth quarter growth of 0.3 percent, its second successive quarter of expansion. The government now expects growth this year of close to 1 percent, compared with an official forecast of 0.7 percent.

The Dutch economy grew by a solid 0.7 percent on the quarter, well above the market consensus. Austrian GDP rose 0.3 percent.

The French government expects growth will accelerate this year to at least 0.9 percent, driven by a rebound in company investment.

A breakdown of the fourth quarter French figures showed growth was driven by the first rise in corporate investment in two years. Public investment was even stronger and household spending also recovered.

Finance Minister Pierre Moscovici nonetheless described the economy’s strength as “unsatisfactory” and said faster growth was needed to create more jobs with unemployment at nearly 11 percent.

A worker collects items to pack into boxes at Amazon's logistics centre in Graben near Augsburg December 16, 2013. REUTERS/Michaela Rehle

The growth, however, now needs to spill over into a decent job creation, a crucial link the recovery was missing so far, analysts say.

“Moreover, both the relatively strong euro and the slowdown in emerging market economies are clear downward risks to the growth outlook,” ING’s van Vliet said, adding he expected the ECB to stay cautious.

“That said, today’s better-than-expected GDP data does provide the ECB with a little more confidence about the recovery and hence reduce the chances of a March 6th ECB rate cut.”

Additional reporting by Sarah Marsh in Berlin, Leigh Thomas in Paris and Reuters bureaux; Editing by Jeremy Gaunt

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