BUSINESS

Amid low oil prices and falling euro, eurozone economy grows faster than expected in Q4

02/13/2015 05:03 EST | Updated 04/14/2015 05:59 EDT
BRUSSELS - 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 sharply lower oil prices and a weaker euro.

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

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

A confluence of factors appears to be helping the eurozone. The near 50 per cent fall in oil prices since last summer should help buoy consumer spending while the fall in the euro to near 11-year lows against the dollar should help exporters.

Germany was the standout performer, growing by a quarterly rate of 0.7 per cent. 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 European Central Bank's decision to launch a massive government bond-buying stimulus.

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

Spain also did particularly well, growing by 0.7 per cent, but Greece's economy faltered — declining by 0.2 per cent — 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. Meanwhile, a cease-fire agreement in Ukraine has also eased one of the main uncertainties that have dogged the single currency zone over the past year.

Still, risks from Greece and Ukraine remain. 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.

The ECB's near 1 trillion-euro stimulus, announced last month, is designed to help get inflation back to the target of just below 2 per cent. In the year to January, prices were 0.6 per cent 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.