The euro-area economy has proved more resilient to this year’s energy-price shock than initially expected, according to analysis published by European Central Bank economists.
The authors identify improved energy efficiency, reduced dependence on fossil fuels, government support and investment linked to artificial intelligence as factors helping to sustain activity.
Employment has also supported household incomes and spending. However, the analysis warns that some of those supports may weaken.
Government capacity to cushion further shocks is limited in several countries, while a reversal in AI-related demand could expose parts of the economy.
The authors also identify risks from geopolitical conflict, disruption to energy supplies, renewed trade tensions and extreme weather.
They argue that further investment in electricity grids, cross-border interconnection and cleaner energy could reduce Europe’s exposure to imported fossil fuels.
The analysis, published on October 21, also calls for progress in directing savings towards productive investment.
