Europe’s Trade Surplus, International Relative Prices, and the Productivity Growth Gap

Ifrim, Adrian and Kollmann, Robert and Pfeiffer, Philipp and Ratto, Marco and Roeger, Werner (2025): Europe’s Trade Surplus, International Relative Prices, and the Productivity Growth Gap. Published in: VoxEU.org (4 September 2025)

Abstract

The Euro Area faces persistently weak productivity growth alongside a sustained trade surplus and a trendless real exchange rate. This column shows that persistent productivity growth differentials relative to the rest of the world, are a key driver of Europe’s external surplus. Structural trade shifts, such as declining home bias and falling import prices, have offset the appreciation pressures from the productivity-growth gap. Weak domestic investment is partly driven by global forces, highlighting the limits of purely demand-based explanations and associated policy prescriptions.

• Item Type: MPRA Paper
• Language: English
• Keywords: Euro Area, Trade Balance, Real Exchange Rates, Productivity Growth Gap
• Subjects: E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles; F - International Economics > F3 - International Finance; F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance

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