German growth vaults expectations, France remains in doldrums

By Alexandra Hudson and Alexandria Sage

BERLIN/PARIS (Reuters) - Germany's economy grew by a robust 0.7 percent in the last quarter of 2014, well above forecasts, while French economic activity continued to languish, official data showed on Friday.

The revival of Europe's largest economy followed stagnation over the previous two quarters. It had been expected to expand by 0.3 percent.

Domestic demand lifted Germany out of its mid-year lull and allowed it to achieve 2014 growth of 1.6 percent. The Statistics Office said a slow summer had been overcome with household spending picking up significantly.

"This is a thunderbolt," Unicredit economist Andreas Rees said. "Some spoke of possible recession after the summer but instead Germany rebounded. The fact that the growth comes mainly from the domestic economy gives strong grounds for optimism."

France could not keep pace, growing by just 0.1 percent, meaning the euro zone's second largest economy advanced by just 0.4 percent across the whole of 2014. Italy fared even worse.

"It's obviously still too weak, but the conditions are ripe to permit a cleaner start of activity in 2015," said French finance minister Michel Sapin, adding that business leaders were already beginning to increase investment.

On Monday, France's central bank predicted first quarter growth of 0.4 percent, led by a rise in industrial production and a slight improvement in services activity.

The euro zone as a whole is predicted to show anaemic growth of 0.2 percent in the final three months of the year although Germany's performance could lift that. That figure is due at 1000 GMT.

With Greece's place in the euro zone again uncertain, there is plenty of turbulence for the currency bloc to contend with.

But a halving of the price of oil and the prospect of the European Central Bank buying more than 1 trillion euros of government bonds with new money over the next 18 months should start to spur growth.

Latest data suggest a slightly more buoyant start to the year. The January purchasing managers survey produced the best showing for euro zone firms since mid-2014 and pointed to first quarter growth of 0.3 percent.

ITALIAN PAIN, SPANISH GAIN

Italy's economy stagnated in Q4, marking the 14th consecutive quarter without any growth as an increase in exports was offset by weak domestic demand.

Over the whole of 2014 GDP fell 0.4 percent, the third consecutive decline after contractions of 1.9 percent in 2013 and 2.3 percent in 2012.

Spain released its Q4 figures two weeks ago and boasted quarterly growth of 0.7 percent, the fastest in seven years.

Economy Minister Luis de Guindos told Reuters last week that forecasts for 2015 could soon be lifted as high as 3 percent.

The Dutch economy grew a healthy 0.5 percent in the fourth quarter.

Greek data are due later. The twice-bailed-out country is forecast to post growth of 2.2 percent year-on-year, showing it has put a long and savage recession behind it, at least while it remains firmly part of the euro zone.

(Additional reporting by Gavin Jones in Rome. Writing by Mike Peacock; Editing by Catherine Evans)