Euro area : Are structural factors behind weaker exports?

The euro area has been stagnating now for mo re than one year. One factor holding back the economy is weakness in export growth : exports have been trending down for five quarters now. This weakness is partially simply a correct ion of prior very strong export growth. The volume of exports is now broadly back to its long-term trend. But there is also evidence that export growth is undershooting its fundamental drivers . G iven the relative robustness of global growth, euro area exports should be rising. It is easy to see how the weakness of euro area exports could also reflect structural changes in the fabric of global trade. As China, for example, is moving up the value chain , it is becoming a competitor in many new areas for European companies. Moreover, the number of new trade barriers have shot up during the pandemic. While difficult to quantify at this point, this is likely to have had an adverse effect on European export performance. How lasting this underperformance will be and whether European companies can adjust quickly to the new environment remains to be seen. For now, all this would argue for a limited upside potential for the euro area manufacturing sector in the near future.