Euro Zone Exporters Facing Ongoing Competitiveness Challenges, ECB Reports

FRANKFURT – Exporters in the euro zone are expected to face ongoing challenges for the foreseeable future due to high energy costs and stagnant labor productivity growth, according to a recent study by the European Central Bank (ECB).

Euro area exporters have been steadily losing global market share, and their situation has worsened in recent years as escalating energy prices have significantly impacted profit margins, pushing much of the region’s extensive industrial sector into recession.

The ECB stated that “competitiveness challenges could persist as energy costs are likely to remain high,” noting that the euro zone’s dependency on energy imports makes it particularly susceptible to fluctuations in global market conditions.

Recent crises, including the pandemic and Russia’s invasion of Ukraine, have further highlighted the euro zone’s vulnerability to supply chain disruptions and cost shocks, which may be intensified by geopolitical tensions.

Additionally, labor productivity growth in the euro zone has lagged behind that of the United States, a gap that has widened in recent years. From 1995 to 2019, U.S. labor productivity per hour increased by about 50%, or 2.1% annually, compared to just a 28% increase, or 1% annually, in the euro zone.

This disparity has grown significantly since the onset of the pandemic, initially driven by job retention initiatives and later by the energy price surge, mainly attributable to the conflict in Ukraine.

Between the fourth quarter of 2019 and the second quarter of 2024, euro zone productivity rose a mere 0.9%, while the U.S. saw an increase of 6.7%.

While some improvement is anticipated as supply shocks and shifts in global demand decrease, structural vulnerabilities within the euro zone are expected to keep competitiveness issues alive, the ECB concluded.