Keynote speech by Philip R. Lane, Member of the Executive Board of the ECB, at the Asian Monetary Policy Forum
Introduction
It is an honour to be invited to contribute to the Asian Monetary Policy Forum. My topic today is to examine the role of Europe in the world economy.[1] The views expressed in this speech are my own and should not be interpreted as reflecting the collective view of the Governing Council of the ECB. I am grateful to Paolo Bonomolo, Leonardo Carrai, Virginia Di Nino, Luca Fosso, Nicolò Gnocato, Thore Kockerols, Gerrit Koester, Peter McQuade, Romanos Priftis and Annukka Ristiniemi for their contributions to this speech.
International migration flows are also of substantial relevance for the European economy but are not covered in this speech.
In relation to the linkages between Asia and Europe, developments in Asia are an important driver of the euro area outlook. Along one dimension, shocks to the Asian economy have global reverberations. Along another, the transmission of global shocks is highly intermediated through the centrality of Asia in global supply chains.
My speech today has three parts. I will first review how the euro area economy has evolved over recent decades and how its relationship with the global economy has changed. In the second part, I will introduce some of the ECB modelling tools that we use to analyse how global forces operate on the euro area. Last, I will discuss the role of global forces in shaping the ECB monetary policy stance.
The role of international factors in the euro area
Adjusting for its size, the euro area is a highly-open economy. Trade openness - measured as the sum of exports and imports relative to GDP - is high by international standards. The participation of firms in the euro area in regional and global value chains has doubled over the last three decades (Chart 1). In global production chains, exports often include imported intermediate goods and services, so the full value of an exported product is not necessarily generated in the country that ships it. Euro area output is absorbed across many regions of the world, as illustrated by the left bar of panel c) in Chart 1, with Asia representing a more important final destination than the United States.[3] The value-added approach in Chart 1, panel c) captures the proportion of the value of the final product that is created domestically versus what is sourced from other countries as foreign inputs. The value added perspective provides a clearer view of competitiveness, specialisation, and exposure to external demand and is particularly relevant for the euro area, where the economies are closely integrated both with each other and with the rest of the world. Within the euro area, value-added analysis shows how production is shared across member states and how much each member state contributes to final goods and services. Outside the euro area, it helps in assessing dependence on non-euro-area suppliers and markets. Verifying where value added in gross flows is created is therefore essential for understanding true trade positions, supply-chain vulnerabilities, and the distribution of income and employment gains from trade.
Attinasi, M.G., et al. (2021), "Supply chain disruptions and the effects on the global economy", Economic Bulletin, Issue 8, ECB.
Chart 1
Indicators of trade openness and trade integration
Trade openness in 2024 |
Participation in global value chains |
Value added originated and absorbed in the euro area |
|---|---|---|
(percentage of GDP) |
(percentage of gross export) |
(percentage of total value added) |
 |
 |
 |
Sources: left panel: IMF World Economic Outlook, Eurostat and ECB calculations; middle panel - OECD TiVA (2023); right panel: ADB MRIO 2025 tables and ICIO (Belotti, F., Borin, A., and Mancini, M. (2021), "icio: Economic analysis with intercountry input-output tables", Stata Journal, Vol. 21, No 3, pp. 708-755).
Notes: Left panel - trade openness is the sum of gross exports and gross imports as a percentage of GDP; middle panel - Association of Southeast Asian Nations (ASEAN) includes Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, Timor-Leste and Vietnam. The latest observations are for 2022; right panel - based on 2024 data. Euro area exports shows the percentage contribution of foreign value added in total euro area exports, euro area absorption shows the percentage contribution of foreign value added in total euro area absorption.
When the euro area was formed in 1999, the purchasing power of Asia was similar to that of the euro area. Today, China alone commands nearly twice the purchasing power of the euro area (1.8 times euro area GDP at purchasing power parity), while the rest of Asia matches that of China (1.9 times euro area GDP at purchasing power parity) (Chart 2).
