Report
Euro zone: It is not because there is an external surplus that demand should be stimulated
The euro zone has a significant external surplus . Accordingly, we often hear suggestions that domestic demand should be stimulated in the zone. But this is not certain: We can see a number of signs that unemployment is close to structural unemployment in the euro zone; GDP is therefore close to potential GDP; the external surplus therefore means that domestic demand is weak in relation to potential GDP; Boosting domestic demand under these circumstances would lead to a marked deterioration in foreign trade without any noticeable impact on production; The only argument in favour of stimulating demand would be that - as in the United States – it would force companies to become more efficient and to increase their productivity, then leading to a rise in potential GDP. But without this effect, we see that it is possible to have an external surplus and full employment if domestic demand is weak in relation to potential GDP.
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Natixis
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Patrick Artus
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