Eurozone growth lower than expected as German inflation approaches European Central Bank target
Growth in the Eurozone was revised down in the fourth quarter as more accurate data revealed a weaker than expected German economy as well as a surprise contraction in the struggling Greek economy.
Growth in Europe's largest economy rose in the fourth quarter of 2016, confirming a solid rate of expansion for the year but still coming in lower than expected as inflation approaches the European Central Bank's (ECB) two per cent target.
German GDP rose by 1.9 per cent during the year, after slightly lower than expected 0.4 per cent growth in the final quarter, according to the German Federal Statistics Office.
Domestic demand drove German growth, along with increased government expenditure and a small rise in household consumption.
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However, trade had a negative impact on growth figures, as import growth came in “markedly larger” than the increase in exports, according to the statistical authority.
Mihir Kapadia, chief executive of Sun Global Investments, said: "The GDP figures of Germany are especially concerning since it is the largest powerhouse of the Europe union, and it has lagged behind the UK which aggregated a 0.6% growth rate in the same quarter."
Other nations across Europe also suffered from lower than expected growth, with the crisis-ridden Greek economy shrinking by 0.4 per cent during the last quarter while Finland also saw a contraction of 0.5 per cent.
Meanwhile, consumer price inflation rose to 1.9 per cent in Germany in January, up from 1.7 per cent the previous month.
The rise in inflation to its highest level in over three years will add to pressure from Germany on the ECB. German economists, including German central bank president Jens Weidmann, have been outspoken in criticising the ECB’s ultra-loose monetary policy.
Read more: Higher inflation boosts Europe hawks' case for tightening
However, the ECB has urged patience from countries approaching its target of near but below two per cent, with the central bank’s president, Mario Draghi, insisting inflation must rise sustainably across the entire Eurozone before he will countenance withdrawing quantitative easing stimulus or raising interest rates.
Claus Vistesen, chief Eurozone economist at Pantheon Macroeconomics, said: “The ECB does not set policy according to the needs of the German economy, but the ammunition of the ECB hawks is getting more potent.”