Economic uncertainty remains a significant factor affecting euro area economic activity, with recent analysis highlighting its role in dampening investment and consumption. The article outlines how uncertainty shocks, stemming from geopolitical events, policy shifts, and financial stress, propagate through channels such as real options, precautionary savings, and financial frictions. Empirical evidence shows these shocks negatively impact real GDP growth, with business investment declining sharply and private consumption showing slower recovery. Text-based metrics like the Economic Policy Uncertainty (EPU) index and financial market indicators such as the VSTOXX index reveal persistent uncertainty since 2020. Model-based measures further underscore uncertainty’s influence on macroeconomic outcomes. While some sectors, like intangible investments, show resilience, overall uncertainty continues to weigh on activity, emphasizing its enduring effects on the euro area economy.
© European Central Bank, 2025.
Summary derived from the ECB website (https://www.ecb.europa.eu ).
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