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EU’s Largest Economies Germany And Italy Register Growth For Q4

Latest reports show that Germany’s economy grew in the last quarter of the year 2016 but the growth was lesser than analysts’ expectations. The German gross domestic product was up by 0.4 percent seasonally adjusted in the three months ending Dec. 31. Italy also announced its fourth quarter growth which was 0.2 percent. The growth percentage recorded for both countries is 0.1 percentage lesser than what had been anticipated by analysts.

Germany which posted an annual growth of 1.9 percent last year has been a major contributor to Europe’s slow recovery in 2016. The recovery has overall been driven by factors such as cheap oil, a weak euro and extensive stimulus efforts. Germany’s growth in the last quarter is attributed to strong domestic demand resulting from increased Government spending, improved household consumption and higher investment levels. The growth trends are expected to continue in first few months of 2017, which is a key election year for the country.

In a statement Marco Wagner, an economist at Commerzbank AG in Frankfurt said,

The data are alright — German growth is solid, and impulses came exactly from where we expected them to do. Growth drivers will be similar in 2017.

While such factors have helped boost consumer spending and exports, rising inflation and increased global uncertainty could dampen the growth in coming months. Economists are warning that the uncertainties surrounding trade relations with both the U.K. and the U.S. could impact market sentiment as can the mounting anti EU-sentiment in Germany, France and the Netherlands which are all facing elections this year.

According to Germany’s national statistics office Destatis, inflation was 1.9 percent in January as opposed to the 1.7 percent recorded in December. This is the highest-ever inflation rate since July 2013 but is within the target inflation rate of 2 percent set by European Central Bank (ECB).

With salaries in 2016 rising by just 1.8 percent in Germany, there are fears that the higher inflation rate will eat into the consumer’s income. There are also calls for easing of ECB’s stimulus efforts in face of the inflation. The stimulus program includes a bond-purchase measure of 2.3 trillion euro ($2.47 trillion) that is expected to continue in 2017 as well.

According to the European Commission, the GDP growth for the euro area will be down to 1.6 percent this year from the 1.7 percent seen in 2016. It stated that the drop was due to uncertainties arising from both the Brexit negotiations and the Trump presidency in the U.S.

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