Euro-Area Growth Accelerates on Fuel From German Surge: Economy

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The BMW Motorrad factory in Berlin.

The BMW Motorrad factory in Berlin.

Photographer: Krisztian Bocsi/Bloomberg

The euro-area economy picked up momentum at the end of last year, with Germany reasserting itself as the driver of growth, offsetting weakness in Greece and Italy.

Gross domestic product rose 0.3 percent in the fourth quarter after expanding 0.2 percent in the previous three months, the European Union’s statistics office in Luxembourg said Friday. Analysts surveyed by Bloomberg News predicted growth of 0.2 percent. The Greek economy unexpectedly shrank 0.2 percent.

While the currency bloc’s economy is overcoming its longest-ever slump, falling consumer prices and the rise to power of an anti-austerity party in Greece have increased the risks to growth. To avert deflation in a region where consumer spending is bolstering the recovery, European Central Bank President Mario Draghi announced a 1.1 trillion-euro ($1.3 trillion) quantitative-easing package that has already pushed down bond yields and the single currency.

“For the first time in two years, we can say that the region is going for solid growth,” said Anna Maria Grimaldi, an economist at Intesa Sanpaolo SpA in Milan. “The euro area is supported by the very strong tailwinds of the fall of the euro, the fall of oil prices and the fall of interest rates sparked by ECB QE.”

Record DAX

The euro remained higher after the report and traded at $1.1413 at 12:10 p.m. Frankfurt time. Germany’s benchmark DAX index, which broke through 11,000 for the first time earlier on Friday, was up 0.5 percent.

The German economy, the region’s largest, expanded 0.7 percent in the fourth quarter, more than twice as much as forecast, while French growth slowed in line with economists projections. The Greek economy shrank after three quarters of growth, and Italy’s stagnated after two consecutive quarters of contraction. Growth in Portugal and the Netherlands was 0.5 percent, more than analysts anticipated.

Spain, the euro area’s fourth-largest economy, reported on Jan. 30 that its economy expanded at the fastest pace in seven years in the fourth quarter, with GDP rising 0.7 percent.

In the euro area, “the bulk of fourth-quarter GDP growth is likely due to domestic demand, with private consumption growing considerably again,” said Evelyn Herrmann, an economist at BNP Paribas SA in London. “Further consumption-growth acceleration can be expected in early 2015. Investment, meanwhile, is unlikely to have moved much in the fourth quarter.”

Raising Forecasts

The European Commission raised its euro-area growth forecasts on Feb. 5 while lowering the inflation outlook, citing the lower cost of crude oil and a weaker euro. It sees expansion of 1.3 percent in 2015 and 1.9 percent next year, while consumer prices will fall 0.1 percent this year before rising 1.3 percent in 2016.

“Recent declines in oil prices have strengthened the basis for the economic recovery to gain momentum,” Draghi said on Jan. 22 after he pledged monthly asset purchases of 60 billion euros. “However, the euro-area recovery is likely to continue to be dampened by high unemployment, sizeable unutilized capacity, and the necessary balance-sheet adjustments in the public and private sectors.”

Government finances have moved back into the center of attention after newly elected Greek Prime Minister Alexis Tsipras said he no longer wants to abide by the terms of the country’s bailout program. With Greece at risk of running out of cash by the end of March and its banks in limbo after the ECB turned off a key channel for liquidity supply, the country’s future once again threatens growth prospects for the entire currency bloc.

Political Will

Tsipras said after a meeting with his European Union peers on Thursday that he sees political will to agree on what happens after the current aid program expires this month. Greece’s goal remains a six-month bridge plan that would lead to a new deal with euro-area authorities, he said, while German Chancellor Angela Merkel urged Greece to move swiftly with its next request, which she portrayed as a follow-on to the existing bailout.

“Europe manages to find agreements even if it’s at the last moment,” Greek Finance Minister Yanis Varoufakis said early Thursday after he and his counterparts failed to reach an accord. The Eurogroup will meet again on Monday.

“The crisis in Greece remains a risk, though so far contagion has been very limited and we expect it to eventually reach a deal,” said Nick Kounis, head of macro research at ABN Amro Bank NV in Amsterdam. “The euro zone is likely to continue to surprise positively in 2015,” as “the drop in oil prices, the lower euro and easing bank-lending conditions bode well for growth, while the ECB’s QE program should improve financial conditions further.”

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