Eurozone Growth Model in Crisis Amid Energy Costs and Chinese Competition

The Eurozone's long-standing export-led growth model is under threat from rising energy costs, increased competition from China, and changing global trade dynamics, according to ING economists Bert Colijn and Carsten Brzeski.

In a recent report, the economists outlined four stylized scenarios for future growth in the Eurozone, highlighting the need for productivity gains, cheaper energy, deeper capital markets, and credible structural reforms to support either an export-led or domestic-demand driven model.

The first scenario envisions Europe shifting away from dependence on external demand and developing a stronger internal growth model, driven by public and private investment, renewable energy, and structural reforms. However, the second scenario sees exports losing momentum, trade surpluses disappearing, and European exporters losing market share without sufficient domestic dynamism to compensate.

The economists stress that Europe's success will depend on making clear but disruptive policy choices to achieve productivity growth, cheaper energy, and deeper capital markets. They also emphasize that Europe won't need to choose a new business model upfront, but rather do its homework and then step back to see which model will prevail.