The expansion pushed Britain into second place among the G7 industrialised nations, after the Office for National Statistics revised down annual UK growth to 1.8%, from an initial estimate of 2%.
In the final quarter of 2016 Germany’s economy grew by 0.4%, improving on 0.1% growth in the third quarter. It was fuelled by domestic demand as government and consumer spending rose.
Germany proved the International Monetary Fund wrong, after the Washington-based fund predicted the UK would outpace its G7 peers.
Alan Clarke, economist at Scotiabank, said the economies of both countries had turned out a decent performance last year, and pointed out that UK growth of 0.7% had outpaced Germany in the fourth quarter.
He said: “UK economic growth in 2016 was fractionally below that of Germany – no longer the fastest growing in the G7. In the big scheme of things 0.1 percentage points between friends isn’t something that anyone is going to notice. And if anyone wanted to pick a fight, you are only as good as your last game and the UK scored 0.7% growth in the fourth quarter. Both economies are doing pretty well and survey indicators for [each] suggest more good news early 2017.”
Germany’s statistics office, Destatis, described the country’s economy as “solid and steady”. The figures suggested German consumers had so far shrugged off the uncertainty created by Britain’s decision to leave the European union.
In the final quarter, government spending in Germany rose 0.8%, and household spending increased by 0.3%. Trade was a drag on GDP however, as the 3.1% growth in imports outpaced exports growth of 1.8%.
Economists said growth in 2017 was likely to be slower than the 1.9% achieved in 2016. The German government is forecasting growth of 1.4% this year.
A strong economic backdrop has helped Germany post a record budget surplus of €23.7bn in 2017, fuelled by higher tax revenues, rising employment and low debt costs. It was the highest budget surplus since reunification in 1990 and the third successive year the government has had a budget surplus.
Olga Tschekassin, an economist at Barclays, said government and state spending would continue to be the main drivers of growth in the coming quarters. “However, external factors such as Brexit and US trade policy, and a series of upcoming elections in the euro area, will likely increase uncertainty and could harm investment.”