Europe News

Germany fails to lift euro zone GDP

The euro zone economy grew by 0.3 percent in the last three months of 2015, meeting expectations, official statistics show.

Data from Eurostat showed that, year on year, the gross domestic product (GDP) for the 19 countries that use the euro grew a respectable 1.5 percent in the fourth quarter. Although that was still lower than the 1.8 percent seen in the same period by the broader 28-country European Union.

Greece and Finland were the only countries in the single currency area that reported a contraction in GDP in the fourth quarter, of 0.6 percent and 0.1 percent respectively.

Chris Williamson, chief economist at Markit which compiles purchasing manager's index (PMI) surveys for the region, said the data confirmed "steady but disappointingly unspectacular growth achieved by the euro zone."

"The coming year also looks challenging. January PMI survey data have already indicated a limp start to 2016, registering one of the weakest expansions seen over the past year. Although there are signs of renewed life in the region, linked in part to the weak euro helping spur exports, the migrant crisis, political uncertainty, high unemployment and sluggish global demand all pose downside risks to the outlook," he said in a note Friday.

Howard Archer, the chief U.K. and European economist at IHS, said the analysis firm had been expecting GDP growth in the region to improve to 1.7 percent in 2016, "but this is currently looking ever more questionable and may well need to be revised down."

Earlier on Friday, preliminary growth data from the euro zone's largest economy and powerhouse, Germany, showed the economy is limping along with a lackluster expansion seen in the fourth quarter.

In the fourth quarter, German GDP rose 0.3 percent from the previous quarter, in line with expectations. Year-on-year, the economy expanded 1.3 percent, Germany's statistics office Destatis said on Friday. The statistics body also confirmed growth of 1.7 percent in 2015.

Destatis noted that "positive contributions were made by domestic demand again" although it noted a decline in exports had put a dampener on growth.

n employee inspects a truck axle hanging on the assembly line inside the MAN SE factory in Germany.
Krisztian Bocsi/Bloomberg via Getty Images

"General government final consumption expenditure was markedly up, while household final consumption expenditure rose slightly again." However, it said "the development of foreign trade had a downward effect on growth because the exports of goods were down on the previous quarter. Imports decreased, too, though less strongly."

The data comes ahead of wider euro zone figures for the fourth quarter. Analysts are forecasting growth of 0.3 percent in the fourth quarter for the 19-country single currency region, the same rate as the third quarter. "That would confirm that the euro area economic recovery lost some momentum in the second half of last year and suggests that the year-on-year rate moderated slightly to 1.5 percent year-on-year," Chris Scicluna, head of economic research at Daiwa Capital Markets said in a note on Friday.

There are fears that a further slowdown in Germany could impact growth in the region. The country has been seen as the backbone of the euro zone economy in recent years with its gross domestic product expanding despite difficult conditions during the region's economic crisis.

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But in recent months Germany has faced political and economic storms both at home and abroad with political divisions rife over Chancellor Angela Merkel's handling of the migrant crisis and the Volkswagen scandal damaging the country's reputation. In addition, Germany's latest industrial production saw a sharp dip in December, falling by 1.2 percent from the previous month.

Greg Fuzesi, an economist at JPMorgan, said that in light of the surprisingly weak industrial production data, "the GDP outturn is okay, as growth could have easily printed at zero."

"But, from a broader perspective, the outturn is of course modest, with GDP up only 1.3 percent year on year, with some loss of momentum during the years," he said in a note Friday.

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