By Paul Hannon and William Horobin

PARIS -- The eurozone economy grew faster than that of the U.S. last year for the first time since 2008 and its jobless rate fell to a seven-year low, putting the currency area on a steadier footing at the start of a year clouded by political uncertainty.

A fourth-quarter pickup allowed the eurozone economy to expand by 1.7% compared with 1.6% for the U.S. in 2016, demonstrating the currency zone's resilience in the face of repeated shocks to confidence, including the U.K.'s June vote to depart the European Union and terrorist attacks in France, Belgium and Germany.

Figures released Tuesday by the EU's statistics agency, Eurostat, also showed consumer prices were 1.8% higher in January than a year earlier, marking the eurozone's highest inflation rate since February 2013.

Although a breakdown of the factors driving growth in the final three months of last year isn't yet available for the eurozone as a whole, national figures point to a revival of investment spending.

Ficime, a federation of 417 French companies importing and distributing machinery, reported an 8.1% rise in revenues related to business investment in 2016.

"Growth was well above previous years," Ficime President Alain Rosaz said. "It's a clear sign businesses are responding to the recovery after not investing for a long time."

Buoyed by the ECB's stimulus programs and a weaker currency that appears to have aided exports, the eurozone's gross domestic product in the fourth quarter was 0.5% higher than in the three months to September. On an annualized basis, growth picked up to 2%from 1.8% in the third quarter.

There are headwinds, however, that make it far from certain the eurozone is set to embark on a more dynamic recovery after more than three years of modest growth.

Rising energy prices threaten to damp consumer spending unless workers can secure similarly large wage rises. The higher inflation rate was almost entirely the result of an 8.1% rise in energy prices over the year. The core measure of inflation that excludes energy, food and some other items was unchanged at 0.9%, which is lower than in January 2015.

"The rise in euro area inflation, coupled with a strengthening of GDP growth, will likely add to calls, primarily from Germany, for the ECB [European Central Bank] to begin to normalize monetary policy," said Cathal Kennedy, an economist at the Royal Bank of Canada. "However, the fact that underlying inflation remains subdued should allow the ECB to continue to counter those calls."

In December, the ECB announced an extension of its bond-buying program until the end of this year, although it will lower the monthly rate of purchases from April.

Higher wages have become slightly more likely with a sharper fall in unemployment toward the end of last year. Figures also released Tuesday by Eurostat showed the jobless rate fell to 9.6% in December from 9.7% in November, its lowest level since May 2009.

Economists also worry that growth could be damped by high levels of uncertainty ahead of a several key elections that could registers gains for parties hostile to the euro and the EU.

So while ECB President Mario Draghi, during a news conference earlier in January, noted signs of a growth pickup at the turn of the year, he also warned that "the risks surrounding the euro area growth outlook remain tilted to the downside and relate predominantly to global factors."

Among those global factors, business leadersare concerned about the impact on Europe if President Donald Trump follows through on his antitrade rhetoric with protectionist policies, but not resigned in the face of it.

"If protectionism ends up being a real problem, we will focus on options outside the U.S., and there are quite a few," said Robert Saller, a board member at DELO, a company near Munich that produces adhesives for electronic devices.

Figures also released Tuesday showed stronger consumer-spending growth and a sharp rebound in business investment helped raise French GDP 0.4% quarter-on-quarter, a pickup from the 0.2% growth recorded in the third quarter.

In France, the leading presidential candidates are proposing significant departures from the current economic policy of President François Hollande's administration ahead of two rounds of voting in April and May.

National Front leader Marine Le Pen has centered her campaign on pulling France out of theeuro and the EU, while the conservative candidate François Fillon says he would implement a deep austerity program coupled with tax cuts for business and tax increases for consumers. Pro-business and pro-European centrist Emmanuel Macron, who has surged in the polls in recent weeks, has indicated he would concentrate on loosening labor laws to tackle unemployment.

Similar uncertainty surrounds the future of economic policy in the Netherlands and Germany, which also face elections this year, as may Italy. Meanwhile, the U.K. government is expected to invoke Article 50 of the EU's treaty in March, starting a two-year exit process on terms that are as yet unknowable.

Previously released figures indicate Germany's economic growth rate accelerated to 0.5% from 0.2% in the third quarter, while Spain's growth rate remained steady at 0.7%. But economists warn growth is likely to slow in the latter country after more than two years of strongrecovery from a property and banking crisis.

"Spain is gradually on a path of deceleration," Daniele Antonucci, a Morgan Stanley economist, said.

--

Jeannette Neumann

in Madrid and

Nina Adam

in Frankfurt contributed to this article.

Write to Paul Hannon at paul.hannon@wsj.com and William Horobin at William.Horobin@wsj.com

(END) Dow Jones Newswires

January 31, 2017 13:18 ET (18:18 GMT)

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