Eurozone: Domestic demand the cornerstone of growth, export an important source of stimulus

The economic upswing in the Eurozone has continued now for the fourth year in a row. Having overcome the deep recession of the financial crisis in 2009 and the recession of the years 2012 and 2013 as a consequence of the sovereign debt crisis, the current rebound is proving altogether robust. For 2017 we expect gross domestic product (GDP) in the European Monetary Union to grow by 2.3 percent year-on-year. Growth can be expected to remain similarly strong next year, lying at an estimated +2.0 percent.

An analysis of the two main parameters on the demand side – net exports and domestic consumption – offers a more precise picture of the growth drivers. The growth contribution of net exports has been fairly insignificant since 2014 as exports and imports have both risen similarly strongly, with the net effect of foreign trade thus being almost neutral. Within domestic consumption, the largest growth contribution comes from private consumer spending followed by investment.

Even if net exports make very little contribution on balance to overall economic growth, export is nonetheless a key source of stimulus for the economy. The upstream and downstream sectors of the entire economy are drawn along by the smoothly-running export engine. These include sectors such as the transport industry as well as recruitment services and the financial services industry. These sectors therefore contribute indirectly to exports. The share of indirect domestic value added in exports accounts for no less than 40 to 50 percent of the entire domestic value added. This is revealed in data of the major EMU member states. The faster the economy gathers momentum, the more demand for new investments increases. For this reason, we estimate that investments will continue to grow next year and deliver a growth contribution to GDP of +0.7 percentage points.

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