World Economy

German Economy Grows Fastest Since 2011

German Economy Grows Fastest Since 2011German Economy Grows Fastest Since 2011

Germany’s economy grew at the fastest pace in three years in 2014 and posted a third consecutive fiscal surplus as it overcame a mid-year stagnation.

Gross domestic product rose 1.5 percent, compared with a 0.1 percent gain in 2013, the Federal Statistics Office said in Berlin Friday. That matched the median of 26 estimates in a Bloomberg News survey. The economy expanded about a quarter of a percent in the three months through December, the office said. At 11.9 billion euros ($13.9 billion), the government’s budget surplus was 0.4 percent of GDP, the second-highest since German reunification in 1990.

Germany, Europe’s largest economy, is relying on domestic demand bolstered by record-low unemployment to fuel a recovery after it flirted with recession in the middle of the year. The government has insisted on keeping its budget close to balance even as other countries in the euro area call for more fiscal stimulus.

“We expect the German economy to gradually pick up speed throughout 2015,” said Christian Schulz, senior economist at Berenberg Bank in London. “For most other struggling euro-zone countries, Germany’s example shows that the path toward fiscal health ultimately depends much more on labor market reforms to get people back to work than on spending cuts and tax increases.”

Oil prices have plunged to the weakest since 2009, potentially providing an economic boost to the region. The euro dropped today to the weakest against the dollar since 2003 after the Swiss National Bank unexpectedly gave up its minimum exchange rate.

  Quantitative Easing

More stimulus may yet come as the European Central Bank meets on Jan. 22 to consider starting government-bond purchases to fend off the threat of deflation in the euro area. Policy makers including ECB President Mario Draghi have countered that the drop in crude prices risks entrenching low inflation expectations.

German exports climbed 3.7 percent last year and imports rose 3.3 percent, today’s report showed. Private consumption gained 1.1 percent and government spending increased 1 percent. Equipment investment advanced 3.7 percent and construction investment rose 3.4 percent, after both declined in 2013.

“The German economy turned out to be strong in a difficult global economic environment, benefiting especially from a strong domestic demand,” Roderich Egeler, president of the statistics office said at a press conference in Berlin today.

German GDP increased just 0.1 percent in the third quarter as investment declined, and the economy shrank 0.1 percent in the three months through June. That partly reflects the impact on thousands of companies of European Union sanctions of imposed on Russia because of its involvement in the Ukraine conflict.