BREAKING NEWS
L.A. Now

Germany helps eurozone economy pick up speed

Strong growth in Germany helped the eurozone economy expand faster than expected in the final three months of 2014, the latest in a string of indicators showing the region is picking up steam amid lower oil prices and a weaker euro.

Economic output across what was then the 18-country eurozone was 0.3% higher in the fourth quarter than the previous three-month period, the EU's statistics agency said Friday. That equates to an annualized rate of around 1.2%, which is still only about half the growth rate in the U.S.

The fourth-quarter performance was nevertheless higher than the 0.2% increased anticipated by investors and has buoyed European stock markets on Friday. The Stoxx 50 index of eurozone shares rose 0.7% to a seven-year high.

A confluence of factors appears to be helping the eurozone, which now numbers 19 countries following Lithuania's entry this year. The near 50% fall in oil prices since last summer should help consumer spending while the fall in the euro to near decade-lows against the dollar is a potential boon to exporters. The European Central Bank's stimulus, which involves buying around 1 trillion euros ($1.14 trillion) of bonds, could also lift growth by keeping borrowing rates low.

"Survey data are already signaling an upturn in growth in January, and investors are flooding into the region in response to the improved economic outlook and renewed stimulus from the ECB — a torrent of investment flows which looks likely to continue in coming months barring any escalation of the Greek crisis," said Chris Williamson, chief economist at financial information company Markit.

Germany was the standout performer, growing by a quarterly rate of 0.7%. Its export-heavy economy should do particularly well from the fall in the euro. A lower currency makes exports cheaper in international markets, and the euro is currently weighed down by the ECB stimulus plans.

France lagged, expanding by only 0.1% while Italy's economy was stagnant.

Spain also did particularly well, growing by 0.7%, but Greece's economy faltered — declining by 0.2% — following three straight quarters of growth.

The growth figures cap an encouraging week for the eurozone. As well as the increasingly positive economic backdrop, hopes have grown that a potentially damaging Greek exit from the euro can be avoided as the new government in Athens appears to be edging toward a compromise deal over its debts with its creditors in the eurozone.

Meanwhile, a cease-fire agreement Thursday in Ukraine could ease — if it proves lasting — another major source of uncertainty for the region.

Still, risks remain. The progress made over Greece and Ukraine could yet unravel. At the same time, the region is suffering a bout of falling consumer prices. If sustained for a long time, deflation can choke an economy as consumers delay spending in hopes for bargains down the line and businesses fail to innovate and invest amid faltering profits.

The ECB's stimulus, announced last month and set to take effect next, is designed to help get inflation back to the target of just below 2%. In the year to January, prices were 0.6% lower.

"Hopes rest largely on the success of the stimulus program, but the situation is likely to remain precarious for the foreseeable future," said Dennis de Jong, managing director at UFX.com.

Copyright © 2016, Los Angeles Times
63°