Consumers and foreign trade fuelled a 1.5 percent expansion in the German economy in 2014, its best performance in three years, which will prop up the euro zone reading but masks weakness in the final three quarters of the year. Private consumption contributed 0.6 percentage points to growth last year, preliminary data from the Federal Statistics Office showed, as record high employment, rising wages and moderate inflation boosted household spending.
Foreign trade, a traditional driver of Germany's economy that has lost steam in recent years and dragged on growth in 2013, added 0.4 percentage points despite persistent sluggishness in Europe, its top export market, and wars in Ukraine and the Middle East. Investment in machinery and equipment also underpinned growth for the first time in three years while construction provided support after stagnating in 2013. Germany is under pressure from euro zone partners to raise infrastructure spending to prop up the euro zone's weak economy.
But economists pointed out that the German economy had not fared as well throughout 2014 as the full-year data for gross domestic product (GDP) growth suggested. "On closer inspection, the German economy was in stall mode for much of the year," the DIW economic institute's Ferdinand Fichtner said. "In reality it was only the strong start to 2014 that led to this good result, and that was largely down to a mild winter."
The German economy started the year with robust quarter-on-quarter growth of 0.8 percent, only to contract in the second quarter and narrowly avoid a technical recession with meagre growth of 0.1 percent in the third. It probably grew by around 0.25 percent in the fourth quarter, the Statistics Office said. The euro zone's 2014 GDP reading is due on February 13. The European Commission forecasts the currency bloc's output will increase by 1.2 percent after declining by 0.4 percent in 2013.
Sources within the ruling coalition told Reuters the government was considering revising up its forecast for 2015 GDP growth to 1.5 percent from 1.3 percent. Economists say there is reason to hope Germany will match its 2014 performance this year despite external factors such as the looming threat of anti-bailout party Syriza taking power in Greece and a standoff between Russia and the West over Ukraine. "If Germany grows by 1.5 percent in 2015, it'll be thanks to the cheap oil prices and weaker euro. Germany urgently needs more public investment spending and more incentive for private investment," Nordea economist Holger Sandte said.