Bonds & Rates
Home›Bonds & Rates›Economy›Lagarde warns Europe’s growth pillars are weakening am…
Lagarde warns Europe’s growth pillars are weakening amid global shifts
Lagarde said trade restrictions rose to more than 2,500 globally last year and that EU energy-intensive electricity prices averaged more than twice US levels.
Christine Lagarde said Europe’s post-war growth model relied on three mutually reinforcing pillars: openness to trade, strength in mid-tech manufacturing supported by relatively cheap energy, and a stable rules-based global order backed by a US security umbrella. The ECB chair argued that all three pillars are weakening as the international environment changes.
She said expanding trade can no longer be taken for granted, noting that more than 2,500 trade restrictions were implemented globally last year. On manufacturing, Lagarde pointed to China’s shift up the value chain, saying it now competes directly with the euro area in close to 40% of sectors that Europe has a comparative advantage in, compared with around 25% in the early 2000s.
Lagarde also said European industry’s energy advantage is eroding, citing EU electricity prices for energy-intensive industries that were on average more than twice US levels and around 50% above those in China last year. She added that pressure on the global order from geopolitical tensions is bringing critical dependencies and chokepoints into economic decisions, which can reduce investment when capital is seen as less safe.
Even as trade headwinds persist, Lagarde said the EU has the world’s largest network of trade agreements, and that the network is expanding with agreements concluded or advanced with partners including India, Indonesia, Australia, Mexico and Mercosur. She added that Europe retains world-class manufacturing capabilities, including leadership in lithography and precision optics, and cited that in Germany 35% of bachelor’s graduates are in STEM fields.