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Euro zone growth beats as Germany storms ahead

The euro zone's gross domestic product (GDP) expanded more than expected in the fourth quarter of 2014, boosted by an acceleration in Germany's growth.

The 19-country bloc's combined economy grew by 0.3 percent in the final three months of the year from the previous quarter, according to official figures published Friday. This was above analyst expectations and higher than a 0.2 percent expansion in the third quarter.

"This suggests that falling oil prices, a weakening euro and ECB (European Central Bank) stimulus were already feeding through to support euro zone activity in the fourth quarter of 2014," Howard Archer, chief European economist at IHS Global Insight, said in a note. "There should be more of this to come."

A buyer picks up euro coins in a supermarket in Vilnius on January 1, 2015.
Petras Malukas | AFP | Getty Images

Region-wide growth was driven by the euro zone's largest economy, Germany, which also posted above-forecast growth for the period, bolstering hopes that its economy is back on track.

A key measure of economic growth, seasonally adjusted GDP in Germany expanded by 0.7 percent quarter-on-quarter, according to official figures—substantially higher than analyst expectations of 0.3 percent. In 2014 as a whole, the German economy grew by 1.6 percent.

It comes after widespread concern about the health of the German economy, following a sharp slowdown in Russia – a major market for German exports. In a gloomy outlook towards the end of 2014, the Bundesbank warned that Germany risked coming dangerously close to recession.

The Russian economy, which is battling a low oil price and Western sanctions imposed following its actions involvement in the Ukraine conflict, is expected to contract this year.

Archer said the German GDP figures "marked a very welcome and much-needed return to form."

"There are currently encouraging signs that German activity is seeing a decent start to 2015, helped by healthy consumer fundamentals of robust real earnings growth and high employment," he added.

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While Daiwa Capital Markets' Chris Scicluna said the initial figures provided cause for "a little more optimism" about the region's economy.

"While (German) exports were reportedly strong, a solid increase in imports left domestic demand the primary source of growth at the end of last year," he wrote in a note.

Country break down

In more good news, Spain's economy also picked up in the fourth quarter, to grow 0.7 percent in the fourth quarter from 0.5 percent in the third. Growth in Portugal and the Netherlands also improved.

However, separate figures, also published Friday, revealed that the French economy expanded by just 0.1 percent in the final three months of last year on the previous quarter.

Although this figure met analyst forecasts, it indicates "a continuation of the country's sluggish malaise," Scicluna added.

There were also disappointing figures from Italy, where growth was stagnant, and Greece, where GDP contracted 0.2 percent quarter-on-quarter in the final three months of 2014.

"(This) will likely be sized upon by the new government as evidence that the old policies are not working and a change of approach is needed to dealing with Greece's problems," IHS' Archer added.

- By CNBC's Katrina Bishop