Optimism that Europe’s economy might finally be turning a corner was fuelled on Friday by stronger-than-expected growth data from Germany and encouraging signals from the wider eurozone.
The figures, for economic growth in the fourth quarter of last year, sent stock markets higher, despite lingering concerns about the potential impact of a showdown between Greece and its creditors over the country’s international bailout.
Cheaper oil, a weaker euro and a landmark sovereign bond-buying programme by the European Central Bank have stoked expectations that the eurozone will this year record its strongest annual growth since 2010.
The figures released on Friday confirmed Germany’s role as Europe’s powerhouse. Its economy expanded 0.7 per cent in the fourth quarter — well ahead of analysts’ expectations of 0.3 per cent growth.
Data from Eurostat, the European Commissions’ statistics bureau, showed that the broader eurozone saw growth of 0.3 per cent — higher than the 0.2 per cent recorded in the previous three months and also ahead of forecasts.
This boosted hopes that the region’s recovery might be gathering pace. It has suffered years of near-stagnation and remains smaller than before the global financial crisis, growing by only 0.9 per cent in 2014. But last month, the commission upgraded its forecast for eurozone growth for this year to 1.3 per cent, suggesting the outlook was finally improving.
“The euro area recovery appears in better shape than expected,” said Thomas Harjes, an economist at Barclays.
However, the picture is not consistently positive. France eked out quarterly growth of just 0.1 per cent, while Italy stagnated and Greece’s economy contracted 0.2 per cent, after three successive quarters of expansion.
The Xetra Dax, Frankfurt’s main equities index, broke through 11,000 for the first time in response to the gross domestic product numbers, before closing at a record high of 10,970.3 — up 0.5 per cent on the day.
Meanwhile, the FTSE Eurofirst 300 rose 0.7 per cent to 1,503, its highest level since early 2008.
US stocks were also on track to reach record highs, with the S&P up 0.26 per cent at 2093.96 in mid-session. Investors were cheered by a generally positive earnings season, as well as easing geopolitical concerns over Ukraine following the signing of a ceasefire in Minsk this week.
In Germany, unemployment — at post-reunification lows of 6.5 per cent — has helped lift domestic demand, with households increasing their spending “markedly” in the fourth quarter, the country’s Federal Statistics Office said on Friday.
German companies were beginning to make substantial investments again, with spending on machinery and equipment rising, notably in the construction sector.
The eurozone’s largest economy has grown by an impressive 1.6 per cent over the past year, compared with 0.4 per cent for France.
“It appears [German] consumers are fully spending the windfall gains from lower oil prices, and better investment activity underlines that firms are growing more confident that better domestic and global demand conditions are going to be sustained,” said Mr Harjes.
Jörg Krämer, chief economist at Commerzbank, said: “The usual suspect [for the strong figure] is the unusually mild winter weather in December, especially as the statisticians hinted to a strong increase in construction spending. But even if the number was slightly lower, fourth-quarter growth would still look quite strong.”
The German economy had started off last year strongly, before growth petered out over the second and third quarters. Exports and confidence were hampered by the crisis in Ukraine as western governments slapped sanctions on Russian companies and individuals.
Friday’s data come as President François Hollande’s Socialist government in France is attempting to pass a number of business-friendly reforms to return the eurozone’s second-largest economy to higher growth.
The reforms, contained in a package before parliament, include measures to relax Sunday shop opening hours, open up regulated professions, and allow competition for long-distance bus routes.
Philippe Waechter, chief economist at Natixis Asset Management in Paris, said that while internal demand contributed to growth, investment by households and companies fell.
“We are not confident about investment — this is the main weakness,” he said.
toItaly’s economy contracted 0.4 per cent for the whole of 2014, but the Bank of Italy is forecasting GDP growth of at least 0.5 per cent for this year and at least 1.5 per cent in 2016, on the back of a weaker euro, which it expects to boost exports. It also expects the ECB’s bond-buying programme, combined with lower oil prices, to help consumption.
But hopes of a recovery in the Italian economy have been dashed on several occasions in recent years, so many economists are waiting for stronger evidence to declare a shift in the cycle.
With additional reporting by Adam Thomson in Paris, James Politi in Rome and Duncan Robinson
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