Why is the euro zone unable to break out of the lowgrowth trap?
The euro zone is currently facing: Low potential growth; A global move to relocate production closer to the end-buyers of the goods, which explains the slowdown in global trade. These two trends taken as a whole have led to a “low-growth trap” for the euro zone:
Investment, which is therefore increasingly made to meet local demand, is weak since the medium-term growth outlook for domestic demand in the euro zone is weak;
If investment is weak, productivity gains do not pick up and potential growth remains low.
Conclusion: Major difficulties for the euro zone due to low potential growth and the new global organisation of production If the trend is to produce closer to the end-buyers of the goods, in an equivalent manner:
– Investment will be linked to local demand for goods and services; – As global trade and therefore exports are weakened (Chart 5), investment will depend on the outlook for domestic demand.
As, moreover, potential growth is low in the euro zone, the outlook for demand is weak, investment remains weak, productivity gains remain weak, and potential growth remains low.
The euro zone can no longer rely on exports and on export-related investments to drive its growth, on the demand side as well as the supply side.
