Heterogeneous economic growth vulnerability across Euro Area countries under stressed scenarios

Claudio Lissona and Esther Ruiz

Papers from arXiv.org

Abstract: We analyse economic growth vulnerability of the four largest Euro Area (EA) countries under stressed macroeconomic and financial conditions. Vulnerability, measured as a lower quantile of the growth distribution conditional on EA-wide and country-specific underlying factors, is found to be higher in Germany, which is more exposed to EA-wide economic conditions, and in Spain, which has large country-specific sectoral dynamics. We show that, under stress, financial factors amplify adverse macroeconomic conditions. Furthermore, even severe sectoral (financial or macro) shocks, whether common or country-specific, fail to fully explain the vulnerability observed under overall stress. Our results underscore the importance of monitoring both local and EA-wide macro-financial conditions to design effective policies for mitigating growth vulnerability.

Date: 2025-06
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