Euro area GDP growth dispersion declines, demographics key
Dispersion in real GDP growth across euro area countries has recently declined to a historically low level. A new ECB analysis attributes this trend primarily to varying demographic and labor market developments, rather than productivity differences.
A return to calmer waters
Cross-country dispersion in euro area real GDP growth is currently at a relatively low level, a state typically associated with 'calm' periods such as those preceding the global financial crisis (1999-2007) and the COVID-19 pandemic (2015-19).
This recent decline follows elevated levels observed during the pandemic and in the wake of the Russian invasion of Ukraine.
The analysis also notes a convergence in real GDP per capita since 2015, a trend interrupted by the pandemic but now resuming.
This indicates a broader alignment in economic performance across member states, moving away from the divergence seen during earlier crises.
Demographics overshadow productivity
While past crises saw growth dispersion concentrated in specific sectors like manufacturing during the global financial crisis or consumer services during the pandemic, recent dispersion is less concentrated and more broad-based.
The study finds that varying trends in population growth, changes in the working-age share, and shifts in labor force participation rates are significantly associated with cross-country growth dispersion.
By contrast, productivity growth and changes in unemployment rates show smaller and less statistically significant elasticities.
Germany and Spain exemplify this, with strong inward migration and rising labor force participation driving Spain's growth, while Germany faces an aging population and moderating migration.
Fragile calm in a volatile world
This study offers a nuanced view, showing current stability in growth dispersion but also highlighting how external shocks can quickly reignite divergence.
While demographic factors currently dominate, the underlying structural issues in productivity remain a long-term challenge for sustained convergence.
The warning about the Middle East conflict underscores the fragility of this newfound stability, suggesting that the calm in dispersion might be fleeting.