ECB says AI, greener economy help euro zone weather energy shock

ECB: AI and Greener Economy Help Euro Zone Endure 2023 Energy Shock

Euro Zone's Resilience Amid Energy Crisis

Economic Performance and Contributing Factors

FRANKFURT, Oct 21 (Reuters) - The euro zone economy has weathered this year's energy shock better than expected, with lower dependence on fossil fuels, stronger fiscal support and an AI investment boom helping sustain growth, European Central Bank economists said on Wednesday.

The assessment, published in an ECB blog, adds to a growing debate among policymakers about whether structural changes in the global economy are raising growth, investment and interest rates after an era of relative weakness.

Impact of Energy Price Surge

The euro area has been hit by a surge in oil and gas prices after the Iran war disrupted energy markets, rekindling inflation concerns and contributing to a global bond selloff. But the currency bloc has continued to grow and business surveys indicate expansion remains intact.

Reduced Reliance on Fossil Fuels

ECB economists Oscar Arce, Gerrit Koester and Beatrice Pierluigi estimated that the economy is now only about half as reliant on oil as it was in the early 1990s, limiting the impact of energy price shocks.

Role of Renewables and Nuclear Energy

Higher renewable and nuclear generation has also weakened the link between gas prices and electricity costs in several countries.

AI and Fiscal Support as Growth Drivers

The blog said AI-related trade had become an "important tailwind" for the euro area, with technology-related export orders and AI-linked sectors outperforming. 

The fiscal impulse, at 0.5% of GDP, was twice the size expected at the end of last year, mainly thanks to German government spending on defence and infrastructure.

Risks and Future Outlook

Potential Challenges Ahead

Still, the economists warned that much of the support may prove temporary. Global demand, fiscal stimulus and AI investment could fade, leaving the bloc exposed if geopolitical tensions worsen or energy markets suffer fresh disruptions.

ECB Policy Response

The findings come as the ECB debates more interest rate increases to stem an energy-led inflation surge, with the third hike of the year expected in December.   

(Reporting by Francesco Canepa; Editing by Alexander Smith)