German economic growth slowed more than economists forecast to the weakest in a year in the fourth quarter as export demand eased and unusually cold temperatures curbed construction output.

Gross domestic product, adjusted for seasonal effects, rose 0.4 per cent from the third quarter, when it increased 0.7 per cent, the Federal Statistics Office in Wiesbaden said today. From a year earlier, GDP increased 4 per cent.

Production growth in Europe's largest economy may accelerate this year on strong export orders from Asian nations including China, the VDMA machine makers' association said last week. The Bundesbank forecast the economy, which has driven growth in the euro area, to expand 2 per cent this year.

Adding to signs a recovery is gaining momentum, investor confidence probably rose for a fourth month in February, a Bloomberg survey shows. The ZEW Centre for European Economic Research in Mannheim will release its report this morning. German business confidence surged to a record in January and unemployment fell to the lowest in almost two decades.

The European Union's statistics office in Luxembourg will release the report today. French GDP increased 0.3 per cent in that period.

Some countries are still struggling to revive their economies after the region's debt crisis forced governments to toughen austerity measures. Greece's economy probably shrank 1.6 per cent in the three months through December, its tenth quarterly contraction, while Portugal's GDP dropped 0.3 per cent.

Diverging economic developments across the 17-member region may make it harder for the European Central Bank to set borrowing costs at a time when rising commodity and food prices boost inflation. In Germany, inflation quickened to 2 per cent in January from 1.7 per cent in the previous month.

"Fear of higher inflation eating up wage increases has a psychological effect on consumers," said Alexander Koch, an economist at UniCredit Group in Munich. "Prospects for an exuberant jump in private consumption have subsided although there's still scope for a spending increase."

Volkswagen AG, Germany's biggest automotive employer, last week agreed to boost compensation for 100,000 workers in the western part of the country by 3.2 per cent to avert strikes at a time of surging orders. Germany's machinery sector may create an additional 20,000 jobs this year, Frankfurt-based VDMA said.

Bloomberg