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Euro zone economy accelerates thanks to German 'thunderbolt'

By Philip Blenkinsop and Alexandra Hudson

BRUSSELS/BERLIN (Reuters) – Euro zone 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 the economy of the 18 countries sharing the euro expanded by 0.3 percent 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 percent expansion, the same rate as in the third quarter.

Year-on-year, euro zone growth was 0.9 percent in the fourth quarter, also 0.1 percentage points higher than expected.

The euro zone’s biggest economy, Germany was a clear outperformer, growing by 0.7 percent in the quarter, far surpassing expectations of a 0.3 percent 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 percent

Domestic demand lifted Germany out of its mid-year lull and allowed it to achieve 2014 growth of 1.6 percent. The Statistics Office said 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 percent, meaning the euro zone’s second largest economy advanced by just 0.4 percent 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 percent, led by a rise in industrial production and a slight improvement in services activity.

With Greece’s place in the euro zone again uncertain, there is plenty of turbulence for the currency bloc to contend with.

But a halving of the price of oil and the prospect of the European Central Bank buying more than 1 trillion euros ($ 1.1 trillion) of government bonds with new money over the next 18 months should start to spur growth.

Latest data suggest a slightly more buoyant start to the year. The January purchasing managers survey produced the best showing for euro zone firms since mid-2014 and pointed to first quarter growth of 0.3 percent.

ITALIAN PAIN, SPANISH GAIN, GREEK DIP

In Greece, the economy contracted by 0.2 percent in the final three months of last year after three consecutive quarters of growth. That marked a 1.7 percent increase from the same period a year earlier, but was below the 2.2 percent forecast.

The twice-bailed-out country’s economy had been expected to show it has put a long and savage recession behind it, at least while it remains firmly part of the euro zone.

Italy’s economy stagnated in Q4, marking the 14th consecutive quarter without any growth as an increase in exports was offset by weak domestic demand.

Over the whole of 2014 GDP fell 0.4 percent, the third consecutive decline after contractions of 1.9 percent in 2013 and 2.3 percent in 2012.

Spain released its Q4 figures two weeks ago and boasted quarterly growth of 0.7 percent, the fastest in seven years.

Economy Minister Luis de Guindos told Reuters last week that forecasts for 2015 could soon be lifted as high as 3 percent.

The Dutch economy grew a healthy 0.5 percent in the fourth quarter.

(Additional reporting by Alexandria Sage in Paris and Gavin Jones in Rome; Writing by Mike Peacock; Editing by Catherine Evans)

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