The acceleration in growth in the final quarter, which was broadly in line with our expectations, was largely the result of higher inventory investment. This contributed 1.9 percentage points to growth (annualized), following a negative contribution of 1.3 percentage points in the third quarter 2011. By contrast, government demand exerted a considerable drag on economic activity.
For the current quarter we expect the pace of growth to level off again somewhat. For one thing, inventory investment cannot be expected to provide another hefty impulse. Following the recent normalization, inventory levels are now more in line with final demand. Secondly, public sector expenditure is likely to continue to be a drag on overall demand. As already seen in late 2011, defense spending could slide further. The figures also point to soft private consumption in December, providing an unfavorable starting point for consumption momentum in the first quarter of 2012. All in all, however, growth is set to continue. The recent steep rise in new orders for capital goods, the positive overall survey results available so far on manufacturing activity in January 2012, the ongoing underlying decline in initial jobless claims and signs of a nascent recovery in residential construction all support this view.