Has the strength of the eurozone been exaggerated?

COMMENT

Amid all the problems surrounding the eurozone as a result of the government debt crisis in the Piigs nations, few commentators seem to have noticed that conditions at the core of the single currency are far from buoyant.

True, German GDP has expanded in each of the last three quarters (0.7% in Q3 and 0.2% in both Q4 and Q1), but the detailed expenditure split of the recently published data reveals that these headline growth figures massively exaggerate the underlying strength of the economy. To illustrate this point, consider the table below, which shows the percentage point contributions to quarterly growth from the various components of aggregate demand over these three quarters. The key point to note is the role of inventories and net trade. In Q3 for example, while GDP expanded by 0.7% and the domest...