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Consumers Held Back German Growth at Close of 2007

Weak consumer spending dragged down German growth in the final quarter of 2007 as inflation surged to a 14-year high, official data showed on Tuesday.

German gross domestic product (GDP) expanded by 0.3 percent in seasonally adjusted terms compared with the third quarter, when growth of 0.7 percent was recorded, the Federal Statistics Office said, confirming a preliminary estimate.

"Although the figures tend to be very volatile, we think that rising inflation has hurt household purchasing power," said Nick Kounis, an economist at Fortis Bank.

German inflation accelerated to its highest level in nearly 14 years in the final quarter of 2007, as rising food and raw material costs combined with a three percentage point gain in value added tax to rattle consumers in Europe's largest economy.

However, investment by businesses was robust and strong job growth has led to record employment in Germany, so analysts believe consumer spending could rebound in 2008.

Kounis said rising private consumption should help to offset the impact of a slowdown in the global economy and the euro's strength against the dollar, which has hurt exporters.

"However, rising food and energy prices are a key risk to both the growth and inflation outlook," he said.

Private consumption declined by 0.8 percent in the October-December period, compared with a quarterly increase of 0.3 percent in the previous quarter.

Compared with a year earlier, Europe's biggest economy grew by 1.6 percent in the final quarter of last year, not adjusted for working days, after 2.4 percent in the third quarter.

Calendar-adjusted GDP growth was 1.8 percent on the year, compared with 2.5 percent in the previous quarter.