Germany Is Holding Up The Euro Zone Economy

Germany helped the euro zone avoid its second recession in three years, as growth in the region’s largest economy offset contraction in other euro zone member countries.

German gross domestic product (GDP) rose 0.5 percent from the fourth quarter of 2011, when it fell 0.2 percent. Growth was mainly driven by net trade, as exports rose and domestic consumption increased, while investment declined.

In the meantime, according to a report published by the European Union’s statistics office, GDP in the 17-nation euro area stagnated in the latest quarter compared with the prior three months as a result of the continuing debt crisis.

Eight euro zone nations are already in a recession, commonly defined as two consecutive quarters of contraction. Italy’s economy shrank 0.8 percent in the quarter, while the Netherlands saw a decline of a 0.2 percent, and Portugal decreased by 0.1 percent. France, the region’s second-biggest economy, avoided contraction, recording zero growth in the first quarter.

In Eastern Europe, Hungary is heading towards a recession. The Hungarian economy contracted 1.3 percent from the previous three months after stagnating in the fourth quarter of 2011. Czech GDP shrank 1 percent, which indicates the third consecutive quarter of contraction, and Romania recorded the second quarter of decline with a 0.1 percent drop.

The economies of Greece, Italy, Spain, Portugal and the Netherlands are all projected to shrink in 2012, with Spain the only euro member seen remaining in contraction into 2013.

An escalation of the sovereign-debt crisis is the biggest risk to the euro zone outlook, according to the European Commission. The region’s GDP will probably drop 0.3 percent this year before increasing 1 percent in 2013.

Source: Bloomberg

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Kenny Fisher

Kenny Fisher

Currency Analyst at Market Pulse
Kenny Fisher joined OANDA in 2012 as a Currency Analyst. Kenny writes a daily column about current economic and political developments affecting the major currency pairs, with a focus on fundamental analysis. Kenny began his career in forex at Bendix Foreign Exchange in Toronto, where he worked as a Corporate Account Manager for over seven years.