The recovery and long term sustainability of the Eurozone is currently reliant on strong German growth, continued ECB intervention, sustained investor confidence in Greece and political stability, none of which are certain.
It looks like Germany is the largest and strongest economy in the Eurozone. It makes up 28% of Eurozone GDP and grew at 3% in 2011 adding 0.8 percentage points to Eurozone growth in that year. The performance of the German economy is important as it provides demand for exports from other Eurozone countries and acts as a bellwether for the Eurozone as a whole. Net export growth (exports minus imports) makes a considerable contribution to German growth, around 0.8 percentage points in 2011. This is based on strong trade relationships with the US, Brazil and the rest of Europe. A PwC report on Eurozone shows that exports to Brazil and the US made the biggest contribution to growth in 2010 and they expect this trend to continue in 2012, although slowing growth in Brazil is likely to reduce its contribution.
Many forecasts show that the German economy will grow modestly in 2012. However, should the German economy tip into a recession, this would compound the problems in the rest of the Eurozone.
What do you think?