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

Author

Listed:
  • Adrian Ifrim
  • Robert Kollmann
  • Philipp Pfeiffer
  • Marco Ratto
  • Werner Roeger

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.

Suggested Citation

  • Adrian Ifrim & Robert Kollmann & Philipp Pfeiffer & Marco Ratto & Werner Roeger, 2025. "Europe’s Trade Surplus, International Relative Prices, and the Productivity Growth Gap," Working Papers ECARES 2025-12, ULB -- Universite Libre de Bruxelles.
    • Handle: RePEc:eca:wpaper:2013/394306
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    References listed on IDEAS

    as
    1. Robert Kollmann & Marco Ratto & Werner Roeger & Jan in't Veld & Lukas Vogel, 2015. "What drives the German current account? And how does it affect other EU Member States?," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 30(81), pages 47-93.
    2. Backus, David K & Kehoe, Patrick J & Kydland, Finn E, 1994. "Dynamics of the Trade Balance and the Terms of Trade: The J-Curve?," American Economic Review, American Economic Association, vol. 84(1), pages 84-103, March.
    3. Gita Gopinath & Şebnem Kalemli-Özcan & Loukas Karabarbounis & Carolina Villegas-Sanchez, 2017. "Capital Allocation and Productivity in South Europe," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 132(4), pages 1915-1967.
    4. Kollmann, Robert & Pataracchia, Beatrice & Raciborski, Rafal & Ratto, Marco & Roeger, Werner & Vogel, Lukas, 2016. "The post-crisis slump in the Euro Area and the US: Evidence from an estimated three-region DSGE model," European Economic Review, Elsevier, vol. 88(C), pages 21-41.
    5. David K. Backus & Patrick J. Kehoe & Finn E. Kydland, 1992. "Dynamics of the trade balance and the terms of trade: the J-curve revisited," Discussion Paper / Institute for Empirical Macroeconomics 65, Federal Reserve Bank of Minneapolis.
    6. Adrian Ifrim & Robert Kollmann & Philipp Pfeiffer & Marco Ratto & Werner Roeger, 2025. "Persistent Global Growth Differences and Euro Area Adjustment: Real Activity, Trade and the Real Exchange Rate," Working Papers ECARES 2025-11, ULB -- Universite Libre de Bruxelles.
    7. Ivan Jaccard & Frank Smets, 2020. "Structural Asymmetries and Financial Imbalances in the Eurozone," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 36, pages 73-102, April.
    8. Ozhan, Galip Kemal, 2020. "Financial intermediation, resource allocation, and macroeconomic interdependence," Journal of Monetary Economics, Elsevier, vol. 115(C), pages 265-278.
    9. Margaret Kyle & Agnès Bénassy-Quéré & Olivier Blanchard & Laurence Boone & Gilberte Cette & Chiara Criscuolo & Anne Epaulard & Jean Sebastien & Xavier Ragot & Philippe Martin & Alexandra Roulet & Davi, 2019. "Productivity and competitiveness in the euro area: A view from France [Productivité et compétitivité : où en est la France dans la zone euro ?]," Sciences Po Economics Publications (main) hal-02452575, HAL.
    10. Margaret Kyle & Agnès Bénassy-Quéré & Blanchard Olivier & Laurence Boone & Gilberte Cette & Chiara Criscuolo & Anne Epaulard & Jean Sebastien & Xavier Ragot & Philippe Martin & Alexandra Roulet & Davi, 2019. "Productivity and competitiveness in the euro area: A view from France [Productivité et compétitivité : où en est la France dans la zone euro ?]," Post-Print hal-02452575, HAL.
    11. Robert Kollmann & Beatrice Pataracchia & Rafal Raciborski & Marco Ratto & Werner Roeger & Lukas Vogel, 2017. "Drivers of the Post-crisis Slump in the Eurozone and the US," Working Papers ECARES ECARES 2017-22, ULB -- Universite Libre de Bruxelles.
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    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • F3 - International Economics - - International Finance
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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