The European Central Bank published a Research Bulletin article using firm-level data for Belgium, Spain, France, Italy and Slovenia to assess the economic impact of disruptions to “foreign critical inputs” (FCIs). It finds that a sudden 50% reduction in imports of FCIs from China and other China-aligned countries would cause transitory manufacturing value added losses of around 2–3%, with implications for growth and price stability. FCIs are defined as inputs sourced mostly from outside the EU that are difficult to substitute, high-tech and/or vital for the green transition, including microchips, turbine parts, optical equipment and chemicals used in drugs and electric-vehicle batteries. The article notes that FCIs represent 17% of extra-EU imports and that in 2022 about a third of EU FCI imports came from China. Under an assumption of no short-run substitution, the model estimates short-term manufacturing value added declines of 2.0% for Belgium, 2.5% for France, 2.9% for Spain, and 3.1% for Italy and Slovenia, with large firms accounting for about 75% of the overall decline. Impacts vary sharply by sector and region, with electrical equipment showing a median value added drop of about 7% and above-median declines also in chemicals, basic metals, electronics and machinery; regional differences are linked to sector specialisation and the concentration of large exposed firms. The article argues that more granular microdata are needed to map dependencies and better assess potential inflationary pressures and broader stability risks from supply shocks.
European Central Bank 2025-02-24
European Central Bank research models 2–3% manufacturing value added loss from halving critical input imports from China-aligned suppliers
The European Central Bank's Research Bulletin article assesses the economic impact of disruptions to "foreign critical inputs" (FCIs) using firm-level data from Belgium, Spain, France, Italy, and Slovenia. A sudden 50% reduction in FCI imports from China and aligned countries could lead to transitory manufacturing value added losses of 2–3%, affecting growth and price stability. The study highlights sectoral and regional variations, with electrical equipment and chemicals experiencing significant declines, and emphasizes the need for granular data to evaluate inflationary pressures and stability risks.