German Economic Growth Hits Six-Year High -- Update

By Todd Buell and Paul HannonFeaturesDow Jones Newswires

Germany's economy grew at the fastest annual pace in six years in 2017, according to data released Thursday, adding further weight to a pickup in growth across the eurozone.

The German statistics office said gross domestic product grew 2.2% last year, after economists polled by The Wall Street Journal expected growth of 2.3%. Still, it was the fastest pace of growth recorded since 2011.

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The office also said it expects the economy to have grown 0.5% on the quarter in the final three months of the year.

Germany's strong performance augurs well for the eurozone, of which it is the largest member. The World Bank on Tuesday estimated the currency area's economy grew 2.4% in 2017, which would mark its strongest performance since 2007 and compare with a projection of 2.3% for the U.S.

Economists expect Germany's positive growth momentum to continue in the current year.

"Looking ahead, the same fundamentals which have supported growth in 2016 and 2017 should still be in place in 2018," said ING economist Carsten Brzeski in a research note. He pointed to the positive combination of low interest rates, a weak euro, a strong domestic economy and positive growth trends across the eurozone.

Imports and exports both grew significantly, at 5.2% and 4.7% respectively.

The data also showed that Germany maintained its strong fiscal health, earning a budget surplus of 1.2% of GDP. Critics say Germany emphasizes not spending more than it earns at the expense of investment and spending that could also help weaker European countries.

The figures will please politicians meeting in Berlin to iron out the future government following inconclusive elections last September. Leaders of Chancellor Angela Merkel's center-right bloc are holding their final meeting Thursday with leaders of the center-left Social Democrats to see if entering formal coalition negotiations are possible. A so-called grand coalition has governed the country since 2013, but many Social Democrats don't want to continue the arrangement.

The pickup in growth across the eurozone in 2017 has made policy makers at the European Central Bank more confident that they will reach their inflation target over coming years. The central bank is cutting monthly bond purchases under a stimulus program known as quantitative easing to EUR30 billion ($35.8 billion) from EUR60 billion.

The acceleration in growth has been aided by a long-awaited rise in business investment, with Germany seeing a 3.5% rise in spending on plant and machinery in 2017.

Figures released by the European Union's statistics agency Thursday indicated that was more widespread across the currency area as 2017 drew to a close. Eurostat said eurozone industrial production was 1.0% higher than in October, and 3.2% higher than in November 2016.

Its figures showed that production of machinery and equipment was 6.2% higher than a year earlier, the largest such increase since August 2011, with much of that coming from Germany, the eurozone's manufacturing powerhouse.

Christian Grimm in Berlin contributed to this article.

Write to Todd Buell at todd.buell@wsj.com and Paul Hannon at paul.hannon@wsj.com

(END) Dow Jones Newswires

January 11, 2018 06:31 ET (11:31 GMT)