ECB's latest research: AI and green energy serve as a "shock absorber" for the euro area, energy shock fails to derail growth

ECB economists said on Wednesday that the euro area economy has weathered this year's energy shock better than expected, with reduced dependence on fossil fuels, stronger fiscal support and an AI investment boom together supporting growth. The assessment, published in an ECB blog post, adds to a growing debate among policymakers over whether structural changes in the global economy are pushing up growth, investment and interest rates after a relatively weak period. The euro area was hit by soaring oil and gas prices after the Iran war disrupted energy markets, reviving inflation concerns and triggering a selloff in global bonds. But so far the euro area economy has kept growing, and business surveys show the expansion remains intact. ECB economists Oscar Arce, Gerrit Koester and Beatrice Pierluigi estimate that the euro area economy is now only about half as dependent on oil as it was in the early 1990s, weakening the transmission of energy price shocks. In addition, the rise in renewable and nuclear power generation has weakened the link between natural gas prices and electricity costs in several countries. AI-related trade has become a "significant tailwind" for the euro area, with tech-related export orders and AI-related industries outperforming other sectors, the blog post said. Fiscal stimulus amounts to 0.5% of GDP, double the level expected at the end of last year, largely thanks to the German government's spending on defense and infrastructure. However, the economists warned that much of this support may prove temporary. Global demand, fiscal stimulus and AI investment could all cool, and the euro area economy would be exposed again if geopolitical tensions intensify or energy markets face new disruptions. The findings come as the ECB discusses further rate hikes to curb an energy-driven inflation surge, with a third increase this year expected in December.