German GDP growth surges, but Greece and France stagnate

Growth remains unbalanced and there is a clear risk of slowdown, says analyst

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The Independent Online

German growth surged unexpectedly in the final quarter of last year, while the Greek economy contracted again, highlighting worrying divergences in the single currency zone.

German GDP expanded by 0.7 per cent, according to the country’s statistics agency, well ahead of the 0.3 per cent growth expected by analysts.

Eurostat also reported that Spain and Portugal grew too, expanding by 0.7 per cent and 0.5 per cent respectively in the final three months of the year.

But growth in Greece turned negative, contracting by 0.2 per cent, following three quarters of growth. Growth was also barely positive in France and Belgium, where GDP edged up by just 0.1 per cent. The recession-struck Italian economy flat-lined over the three months.

Overall the eurozone’s GDP grew by 0.3 per cent, a slender improvement on the 0.2 per cent in the third quarter.

“Growth remains unbalanced and there is a clear risk of a slowdown to come,” said Jennifer McKeown of Capital Economics, pointing to business surveys that point to growth falling to 0.2 per cent in the early part of this year. “This will do little to ease the threat of deflation and there is clearly a risk of a worse outturn if the Greek crisis intensifies,” she added. Output in Greece remains 26 per cent below its level in 2008,  with the country’s Government demanding an overhaul of the terms of its EU/IMF bailout.

However, other economists were more optimistic about the prospects for eurozone growth. “The economy is likely to gain momentum in the coming quarters,” said Nick Kounis of ABN Amro. “The drop in oil prices, the lower euro and easing bank lending conditions bode well for growth, while the ECB’s quantitative easing programme should improve financial conditions further.”

The European Central Bank last month announced a €1.1 trillion programme of asset purchases in order to loosen the grip of deflation. Consumer prices inflation fell by 0.6 per cent in January, down from a 0.2 per cent contraction in December.

Over 2014 as a whole, Germany grew by 1.5 per cent, up from the 1.1 per cent growth in 2013. “We expect German growth to reach trend levels a bit above 2 per cent in the summer 2015,” said Christian Schulz of Berenberg bank. He said that expansion in the eurozone’s largest economy had been held back earlier in 2014 by the Ukraine crisis.

Meanwhile, in the UK,  official statistics showed that the Government’s Help to Buy-inspired housebuilding boom came to a halt in the final quarter of last year. The volume of new homes built dropped by 0.2 per cent – the first fall since the first quarter of 2013, before the housing finance subsidy policy was announced. Overall construction output fell by 2.1 per cent, which was worse than expected.

The annual data showed a 7.4 per cent increase in construction output between 2013 and 2014.