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

Adrian Ifrim, Robert Kollmann, Philipp Pfeiffer, Marco Ratto and Werner Roeger

MPRA Paper from University Library of Munich, Germany

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.

Keywords: Euro Area; Trade Balance; Real Exchange Rates; Productivity Growth Gap (search for similar items in EconPapers)
JEL-codes: E2 E3 F3 F4 (search for similar items in EconPapers)
Date: 2025-09-04
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