Europe's Post-War Growth Model Eroding Amid Global Shifts

Christine Lagarde, President of the European Central Bank (ECB), discussed Europe's post-war growth model at the World Economic Forum. She stated that three mutually reinforcing pillars underpinned this growth: expanding global trade, mid-tech manufacturing, and a stable, rules-based global order.

Lagarde noted that all three pillars are weakening due to changing international circumstances. Global trade is no longer taken for granted, with over 2,500 trade restrictions implemented last year alone. Europe's advantage in mid-tech manufacturing is being eroded by China's rise up the value chain.

The third pillar, a stable global order, is also under pressure from geopolitical tensions and security threats on Europe's doorstep. This has led to concerns about resilience entering economic decisions directly, resulting in reduced investment and weighing on output and consumption.

Despite these challenges, Lagarde emphasized that Europe still has substantial strengths to build on, including its integrated market of 27 Member States and 450 million consumers, the largest among advanced economies. Domestic demand is projected to remain the main source of growth for the euro area this year.