Economic activity in Germany began to pick up sharply towards the end of 2014. In the fourth quarter of 2014, gross domestic product (GDP) rose by 0.7% in real terms. The February Bundesbank Monthly Report states that economic growth in Germany picked up remarkably quickly and strongly towards the end of last year, given that corporate sentiment did not begin to rebound until November.

The Bundesbank attributes this economic upturn to the steep slide in oil prices and the depreciation of the euro. Thus exports rose in the fourth quarter by 1¼% in seasonally adjusted terms compared with the preceding three months. Domestic demand provided an especially strong stimulus. "Against the backdrop of very upbeat income expectations, energy price-related purchasing power gains and strong consumer confidence, private consumption has become the immediate mainstay of the cyclical upturn", the Monthly Report suggests.

GDP expanded in 2014 as a whole by 1.6%, which is even more than the Federal Statistical Office assumed in its initial January estimate.

Upturn set to continue

The Bundesbank believes that the German economy will continue to benefit from the current economic upturn going forward.

While the Bundesbank's economists do not expect the financial fillip given to households by falling energy prices to generate long-term growth stimuli, consumers were evidently quick to take advantage of the unexpected boost to their spending power during the Christmas trading period. A further substantial one-off effect is likely during the first quarter as many homeowners seize the chance to replenish their stocks of heating oil at very low prices.

In addition, the Bundesbank anticipates that the distinct fall in the euro's external value will provide German exporters with greater sales opportunities in markets outside of the euro area, which will have a gradual and incremental impact. Current surveys, says the Monthly Report, indicate that, since the rebound in sentiment in November, not only export-oriented enterprises but also firms focused on the domestic market are taking a more optimistic view of the business outlook.

Additional main topics

The Monthly Report also considers the monetary policy of the ECB Governing Council and examines the Extended Asset Purchase Programme (EAPP) adopted on 22 January 2015. In addition, the Bundesbank's economists outline monetary developments in the euro area and assess German banks' business in the fourth-quarter.

Another key topic in the Monthly Report is German public finances, which developed favourably again in 2014, above all thanks to lower interest expenditure.