-Christian Schulz, senior economist at Berenberg Bank
The Euro zone economy has been mired in deflation for a second straight month in January, as consumer prices fell 0.6% on an annual basis, following the 0.2% drop in December. Meanwhile, German retail sales rose for a fifth straight year in 2014, increasing by 1.4% in real terms, pointing to the buoyant consumers mood in Europe's number one economy. German consumer morale were positive last year as shoppers benefited from a strengthening labour market, rising wages as well as low inflation. Private consumption contributed a 1.5% increase to the nation's gross domestic product. However, measured on a monthly basis, retail sales rose modestly by 0.2% in the festive month, compared with the robust 0.9% surge in November. Private consumption is seen fuelling growth in the Euro zone's biggest economy this year as well, as consumers benefit from cheaper oil. Spanish growth data brightened analysts and politicians' mood, as Spain's GDP rose 2% in the year to the fourth quarter of 2014, compared with the 1.6% growth rate in the preceding three-month period. The economic output increased 0.7% on quarter in the October-December period, following the 0.5% expansion in the September quarter. Other data also point to the fact that the economy is regaining momentum. The manufacturing PMI remained above the 50-mark threshold, which separates contraction from expansion, for more than a year. In addition to that, the Spanish services sector remained in the green territory for the fourteenth consecutive month.
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