Germany grows at strongest rate in 4 years

The German economy grew by 1.7 per cent in 2015, the strongest rate of expansion in four years, driven by robust increases in private and public consumption, a preliminary estimate from the Federal Statistics Office showed on Thursday.

Domestic demand, fuelled by solid wage increases, low inflation and record high employment, is compensating for weaker trade, the traditional driver of Europe's largest economy.

"Germany is on a steady expansion driven by domestic demand," said Holger Schmieding of Berenberg Bank.

Officials from the Statistics Office said the full-year estimate suggested that gross domestic product (GDP) grew by about 0.25 per cent in the fourth quarter of last year, although they cautioned that this was a very rough projection as full numbers for the period are not yet available.

Economists polled by Reuters had expected slightly more modest GDP growth of 1.6 per cent for 2015, the same rate as in 2014.

Private consumption expanded by 1.9 per cent, its strongest full-year rise since 2000, contributing 1.0 percentage points to 2015 growth. Public spending, grew by 2.8 per cent, adding 0.5 points to GDP, while trade contributed 0.2 points, although imports expanded at a slightly higher rate than exports.

The GDP rise was in line with the government's forecast. For 2016, Berlin expects an expansion of 1.8 per cent. A record influx of more than a million migrants last year is pushing state spending higher as authorities spend more on housing and integration measures.

"Looking ahead, the two-speed recovery, with strong consumption and services on the one hand and sluggish industrial production and exports on the other hand, should continue in 2016," Brzeski said.

Schmieding of Berenberg said the risks to growth this year stemmed mainly from the political rather than the economic sphere, citing the risk of Britain, a major German trading partner, leaving the European Union.

"As an open economy in the middle of Europe, Germany is a major beneficiary of European integration," Schmieding said.

"Any serious political development that could jeopardise European integration could weigh on business confidence and investment."