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Energy and Fiscal Shocks: Reassessing Industrial Competitiveness

Author

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  • Carl Grekou
  • Thomas Grjebine
  • Florian Morvillier

Abstract

Energy price shocks never occur in isolation: their impact is shaped by the broader macroeconomic context, in particular by governments' fiscal stance. This paper investigates how two key forces-energy price shocks and demand stimuli induced by fiscal policy-affect industrial performance in advanced economies, and shows that their effects depend critically on trade exposure. Using sector-level data for 30 countries over the period 1978-2022, we find that rising energy prices reduce manufacturing value added through both cost and demand channels, with more persistent effects in less open sectors. In contrast, demand-led fiscal expansions generate more complex dynamics: while boosting domestic sales, they simultaneously weaken external competitiveness. On average, a 1% increase in domestic demand leads to a 1.8% decline in manufacturing exports within three years. The overall effect on value added depends on the degree of trade openness - it is positive in the short term for sheltered sectors, but turns negative after two years in globally integrated ones.

Suggested Citation

  • Carl Grekou & Thomas Grjebine & Florian Morvillier, 2025. "Energy and Fiscal Shocks: Reassessing Industrial Competitiveness," Working Papers 2025-19, CEPII research center.
    • Handle: RePEc:cii:cepidt:2025-19
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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