G20 merchandise trade accelerated in Q2 2026. Measured in current US dollars, quarter-on-quarter import growth rose markedly to 6.7%, from the 5.2% growth recorded in the previous quarter, reflecting strong increases in a number of G20 economies. G20 merchandise exports growth remained broadly flat at 5.9%. Preliminary estimates also point to an acceleration in services trade, with exports rising by 3.4% and imports by 2.5%, as compared to 2.0% and 1.5% respectively in Q1 2026 (Figures 1 and 3).1
In North America, merchandise import growth for the United States increased to 7.8% in Q2 2026, up from 6.0% in the previous quarter, partly reflecting higher purchases of computers and computer accessories, while export growth slowed to 3.9%, despite higher energy prices boosting exports in crude and petroleum. By contrast, Canada’s exports surged by 13.5%, supported by energy products and motor vehicles, while import growth slowed. In Mexico, both exports and imports accelerated, with growth reaching 12.2%, and 7.7% respectively. In East Asia, China’s trade slowed markedly from the high growth for both exports and imports in Q1 2026 (13.4% and 16.9% respectively), but with Q2 2026 exports still growing by 4.7% and imports by 8.9%, both supported by mechanical and electrical products and high-technology goods. Japan’s trade also slowed, despite higher petroleum imports. By contrast, Korea’s imports surged by 11.6%, reflecting higher purchases of energy products and semiconductor equipment, while export growth continued to remain strong at 19.3%, supported by sales of semiconductors. In Europe, higher purchases of energy products boosted import growth to 4.2%, 4.2% and 4.1% in Germany, France and Italy, respectively, while exports grew by 2.1%, 1.8% and 1.8%. In the United Kingdom, higher trade in machinery and transport equipment and in fuels explained a rebound in exports to 6.6% and in imports to 5.7%. Merchandise trade also accelerated in India, where exports surged by 20.4%, with increases across the board, and imports rose by 8.7%, partly driven by purchases of petroleum and of electronic goods.
Strong international services trade growth was recorded in Q2 2026 in East Asia. Services trade accelerated markedly in China, with exports soaring by 16.6%, boosted by sales of transport, travel and ICT services. After growing by 3.3% in Q1 2026, China’s imports rose by 7.5% in Q2 2026, on higher spending for transport, insurance, and other business services. In Japan, exports grew by 7.8%, after negative growth in the previous quarter, supported by sales of intellectual property, ICT and other business services. Imports, however, fell by 2.0%, on lower spending on travel and insurance services. In Korea, import growth recovered to 3.9% in Q2 2026 from negative growth in Q1 2026, as higher transport payments more than offset lower travel expenditure. Export growth slowed but remained solid at 5.6%, reflecting higher transport and travel receipts. Services trade also accelerated in the United States, exports rose by 1.2% after 0.9% in Q1 2026, mainly supported by higher receipts from intellectual property and ICT. Imports grew by 1.5% in Q2 2026, driven by transport and insurance services, following no growth in the two previous quarters. No clear pattern was observed in the G20 European economies in Q2 2026. While exports accelerated in France, reflecting strong transport and travel receipts, they decelerated in Germany and Italy. In the same vein, services imports decreased in France while they increased in Germany and Italy, reflecting essentially higher transport and travel payments.
Click here to access the interactive charts.
 
 
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 Asheville, N.C., United States: International Monetary Fund Managing Director Kristalina Georgieva delivered the following remarks at the G20 Finance Ministers and Central Bank Governors Meeting in Asheville, North Carolina:
“I would like to thank the Government of the United States for hosting this week’s G20 meeting, and Secretary Bessent and Chairman Warsh for their leadership in delivering a focused discussion on key global economic priorities.
During our discussions, there was a strong convergence of views around the importance of lifting potential growth everywhere. In a shock-prone and uncertain world, structural reforms and sound fiscal and monetary policies are essential to creating the foundation for stronger and better-balanced global growth. Beyond domestic responsibilities of policymakers, the G20 reminds us that international cooperation has a crucial role to play, especially in helping countries manage debt challenges, limit spillovers, and address global imbalances.
Global Economic Outlook
Since April, the global growth outlook for 2026 has firmed at around 3 percent. The global economy has absorbed the impact of the energy supply shock better than expected, through the use of oil and gas reserves, new sources of energy, and demand management measures. Surging AI investment—including in power projects to satisfy energy needs—is driving growth, in the US in particular, and in other economies integrated into the AI value chain, such as Korea.
But behind the averages there is significant divergence in economic fortunes and risks to the outlook remain high.
First, the energy shock is not over. The Strait of Hormuz remains largely closed, strategic oil and gas reserves will need restocking, AI drives up energy demand, and in the northern hemisphere winter is coming.
Second, public debt—at almost 100 percent of GDP worldwide—now exceeds its post-World War II highs and is set to climb further. Looking back, the debt trajectory resembles a staircase: big vertical steps when shocks occur, little or no reduction afterward.
Third, the disinflation process has stalled in many countries. Mounting fiscal pressures are pushing core bond yields upward and the interplay between fiscal and monetary policy worries markets.
Last, but not least, the future impact of AI on productivity and financial stability is dogged by unknowns.
The policy priorities are clear. Central banks must focus on their price stability mandate. Fiscal authorities must hammer out credible medium-term consolidation plans. Structural policies should concentrate on cutting red tape and removing self-inflicted barriers to growth—because stronger potential growth would help address the fiscal problem, and addressing the fiscal problem would help lift growth prospects.
Debt Challenges in Developing Countries
The sovereign debt landscape for emerging and low-income countries has gradually improved in recent years, thanks to domestic policy efforts and international cooperation. But progress has been uneven, and persistent risks and uncertainty in the global economy, including spillovers from the significant increase in yields in advanced economies, call for policy discipline and underscore the importance of building buffers.
The increase in global interest rates is of particular concern. As key advanced economy yields rise to multi-year highs, they lift most of the world’s yield curves up with them. In some emerging markets this more than fully offsets hard-won spread compression.
High refinancing needs and rising debt-service costs are constraining many developing economies, in particular low‑income countries, limiting their capacity to finance critical spending on infrastructure, health, and education, which undermines growth and, in turn, debt sustainability.
These challenges are compounded by a sharp decline in net external financing, including cuts in official development assistance, and a marked reduction in new inflows from non‑Paris Club creditors.
Helping countries create fiscal space to support growth-enhancing spending is even more pressing in the current conjuncture.
Addressing these challenges requires a collective effort along three dimensions:

First, decisive action is needed in countries where debt is unsustainable, supported by further improvements in restructuring processes. Important progress has already been achieved, particularly under the G20 Common Framework. The G20 MOU template agreed this year is part of this effort. The Global Sovereign Debt Roundtable has also advanced its work, with the publication in April of an updated “Restructuring Playbook” and important clarifications to facilitate implementation of comparability of treatment and inter-creditor group coordination. These efforts should continue, including developing solutions for countries not eligible to the Common Framework. We will continue to remain strongly engaged, including through greater use of our “good offices” and work under the GSDR.
Second, accelerating the implementation of the IMF-World Bank Three-Pillar Approach to support countries with sustainable debt and pursuing strong growth-enhancing reforms is a key priority. Together with the World Bank, we have strengthened support for countries on reform implementation and domestic resource mobilization and continue to work on ways to encourage effective liability management operations, including to incentivize higher private sector inflows at lower cost. This has worked well in countries such as Ecuador or Pakistan. Securing strong support from other partners, including bilateral creditors, is essential. We count on the G20 to take leadership in this collective support to growth and investment.
Third, there is no substitute for sound economic fundamentals. Helping countries build resilience and prevent unsustainable debt build-up is critical, including through strengthening debt transparency, debt management capacity, and debtor–investor relations.

Global Imbalances
Our latest External Sector Report shows that excess global imbalances—those not explained by fundamentals—widened further in 2025, by 0.7% of GDP, the largest increase in the past decade. This widening was broad-based, with major contributions coming from the two largest economies.
Excess imbalances in major economies can signal uneven growth patterns and macro-financial vulnerabilities. They can result in cross-border spillovers, trade tensions, and economic fragmentation. And this is what we have seen: the widening of excess global imbalances in recent years has taken place against a backdrop of ongoing trade tensions and shifts in the configuration of trade relationships across countries.
The message from Fund research is clear: since macroeconomic factors are the main drivers of imbalances, sustained rebalancing requires policy action in both surplus and deficit countries. In surplus economies, market-oriented structural reforms can boost domestic consumption, promote investment, and lift growth prospects. In deficit economies, appropriate fiscal consolidation can increase savings and help rebuild fiscal buffers. Simultaneous—mutually reinforcing—policies across major economies would yield the best outcomes, including for growth.
At the IMF we recognize our responsibility to support members in addressing imbalances.

We are working with member countries and other international organizations to improve cross-country data and external sector statistics.
We are continuing to refine our EBA methodology that underlines our assessment of excess imbalances. We have extended our analytical framework to better understand the linkages between trade and industrial policies and current account imbalances. We are advancing complementary work on capital flow and stock imbalances.
Our Comprehensive Surveillance Review aims to deliver a more comprehensive and forward-looking assessment of external sector issues at the country level, as well as cross-country spillovers. The goal is to move from diagnosis to action.

The Fund is strongly committed to engaging with our members to address global imbalances. The G20 offers a unique platform to advance this dialogue, and we will continue to support our membership going forward.”
 
 
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Blog | In a world of frequent shocks, central bank communications should anchor expectations by explaining how policy responds to changing conditions, rather than committing to a fixed path.
In a world of frequent and faster-moving shocks, where uncertainty is high and markets react instantly, central banks face a fundamental communications challenge: how to help the public understand monetary policy objectives while explaining how policy may evolve as economic conditions change. In this regard, explaining the policy framework, the reaction function of the central bank, and the way in which economic uncertainty and risks play into alternative scenarios have become the foundation of the central banker’s communications playbook.
As central banks adapt their policy frameworks and tools to a more uncertain and shock-prone world, it is only natural that they are also reassessing how best to communicate policy frameworks and talk about the conjuncture. A new IMF note explores these questions and sets out principles for effective monetary policy communication.
Perils of commitment
During the low-inflation era that followed the global financial crisis, communication was dominated by forward guidance, centered on precommitting to a likely future path of the policy rates. Such an approach can be effective when policy is stuck at the lower bound and inflation expectations are drifting down. But commitments may become costly when circumstances change. Supply shocks, inflation surprises, or abrupt shifts in the balance of risks may require policymakers to adjust course.
As a result, central bank communication has shifted toward explaining how policy will respond as economic conditions evolve and new data become available.
Understanding reaction functions
A central task has therefore been communicating the reaction function: how policymakers interpret incoming data, weigh risks, and navigate tradeoffs between key central bank objectives. The strength of underlying inflation, the evolution of inflation expectations, and the nature of monetary policy transmission are the key inputs to the reaction function. “Data dependence” has featured prominently: central banks emphasize what data matter, how data shape decisions, and what future contingencies may mean. The goal is to help the public understand the logic that guides a central bank’s decision-making.
Explaining Risks and Uncertainty
Central banks convey their views on the economic outlook through forecasts and scenarios. This is crucial because policy decisions are based on where the macroeconomy is expected to go.
But forecasts are not promises. In a shock-prone world, they are subject to tremendous uncertainty. If forecasts are communicated too precisely, or policy-rate projections are interpreted as commitments, revisions can be misinterpreted as policy reversals. In this context, scenarios can help illustrate how policy might respond under different economic outcomes, while reinforcing that future decisions will depend on incoming data and evolving conditions.
Communication for a shock-prone world
Forecasts should be accompanied by a clear explanation of risks. Effectively communicating the reaction function can help the public better understand how policy may respond under alternative economic outcomes. By contrast, rate-path commitments should be exceptional and conditional, with clear escape clauses so that any conditional promise is clearly subordinate to the price-stability mandate.
More isn’t always better
Clear communication can anchor expectations and support accountability. But more communication is not always better. Social media, automated news analysis, and artificial intelligence mean that central bank communications are parsed in real time. Too much detail can lead markets to focus excessively on decoding the central bank rather than assessing fundamentals. Hence conditionality relative to the evolving outlook is foundational.
Volatility’s value
The goal of central bank communication is not to eliminate volatility. Rather, it is to reduce uncertainty about how the central bank will respond, limiting surprises around policy decisions.
Volatility is not, in and of itself, undesirable. When asset prices move in response to new information about incoming macroeconomic data that shape the inflation and growth outlook, markets are performing their essential price-discovery function. Such volatility is fostering the information content of expectations and can in turn provide information to policymakers.
Speaking with humility
Successful communication therefore depends on fostering a better understanding of the policy framework. That means being clear about central bank objectives, the reaction function, and forecasts. Given the high degree of uncertainty globally, central banks need to be explicit about risks, with the goal of reflecting the degree of underlying macroeconomic uncertainty accurately.
 
 
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Once I was elected President of the European Council, I decided to visit each member state every year, to meet bilaterally with each European leader. These exchanges are first and foremost an opportunity to listen: to remain closely attuned to the concerns, priorities and expectations of the members of the European Council, and of the citizens they represent. They also allow me to share my perspective on the challenges and opportunities ahead for our union. These visits take place at the beginning of the political season, provide a unique 360-degree view of the state of our union and help to ensure that the work of the European Council remains firmly anchored in the realities, priorities and aspirations across Europe. 
One of the defining features of European integration is that its most tangible benefits often go unnoticed precisely because they have become part of our everyday lives. We cross borders with ease. We share a single currency from Lisbon to Helsinki and from Dublin to Athens. We benefit from common standards that protect our environment, our health and our quality of life. We support one another in responding to natural disasters – as we have done during this summer’s devastating forest fires –, public health emergencies and other common challenges. And when we travel across Europe, we stay connected with family and friends without giving a second thought to mobile roaming charges. What has become ordinary in our daily lives is, in fact, the result of decades of a shared European endeavour.
This provides a strong foundation on which to continue to build Europe. In today’s geopolitical reality, a stronger, more resilient and more autonomous Europe is more important than ever.
That is why we are building the Europe of defence: to strengthen our ability to deter threats, protect our citizens and, ultimately, restore peace on our continent. A peace that has been shattered by Russia’s ongoing aggression against Ukraine. The EU has set itself the objective of decisively ramping up Europe’s defence readiness by 2030 by strengthening the European defence industry, reducing strategic dependencies and jointly developing priority military capabilities. What is crucial is that Europe’s necessary rearmament is pursued collaboratively, avoiding duplication and waste and, above all, ensuring that this historic effort strengthens the collective security and defence of Europe as a whole.
Building Europe’s strategic autonomy also requires a more competitive economy. That is why the European Union is making it easier to do business by cutting red tape, mobilising private investment to help businesses scale up and innovate, completing the single market, strengthening supply chains and diversifying trade relations, while ensuring access to critical raw materials and to affordable, clean and home-grown energy sources. In all these areas, the ‘One Europe, One Market’ agenda agreed by the European Council sets out concrete objectives to be delivered from now until the end of 2027. Beyond the geopolitical imperative, this is ultimately about making life more affordable for citizens, creating the conditions for more high-quality jobs and improving the resilience of Europe’s social market economy.
Defence and competitiveness, together with EU enlargement and our ongoing support for Ukraine, will be high on the agenda as I meet the European leaders during this year’s tour of capitals.
But among the key decisions before us this year, one stands above all others: reaching, by the end of the year, an agreement on the EU’s next multiannual financial framework – our long-term budget for 2028-2034.
Why must that agreement be reached before the end of 2026? Because we will then need about a year to put in place the necessary legislative and administrative framework – in Brussels and in the member states – to ensure the uninterrupted implementation of the next EU budget. This is simply sound planning. Otherwise, we risk disrupting funding for farmers, businesses, students, researchers and innovators.
For decades, the EU budget has supported sustainable and inclusive growth across our continent through investments in agriculture, our regions, research, and the green and digital transitions. It will continue to do so. At the same time, the budget must also reflect Europe’s evolving priorities, including defence, security and competitiveness.
Like national budgets, the EU budget must deliver on its priorities within the limits of finite resources. Most of it is financed through member states’ national contributions. We need to keep those contributions within reasonable limits. That is why a balanced and ambitious package of new common resources will be an essential part of an overall agreement.
I have been encouraged by the constructive spirit of discussions among leaders on the multiannual budget so far. I am confident that, in the end, we will find the right balance for our union, our citizens and our future. Because it is our shared responsibility to do so.
 
 
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GDP (Gross Domestic Product) growth in the OECD area increased slightly to 0.5% in Q2 2026, up from 0.4% in the previous quarter, according to provisional estimates (Figure 1). This reflected a mixed picture across the 30 OECD countries for which data were available. In Q2 2026, 27 countries recorded growth, but at varying rates, while 3 saw no change in GDP.
GDP growth in the G7 slowed to 0.3% in Q2 2026, down from 0.4% in Q1, reflecting slower growth in five G7 countries: Germany, from 0.4% to 0.2%; Italy, from 0.3% to 0.2%; Japan, from 0.5% to 0.3%; the United Kingdom, from 0.6% to 0.4%; and the United States, from 0.5% to 0.4%. In Japan, the slowdown mainly reflected stagnant private consumption, destocking and a decline in investment. In the United Kingdom, weaker private consumption and a decline in government consumption weighed on economic activity. In the United States, slower growth mainly reflected weaker export growth, destocking and a decrease in government consumption. By contrast, growth in Canada accelerated from zero in Q1 to 0.8% in Q2. In France, GDP returned to growth (0.2%) in Q2, following a contraction of 0.1% in Q1.
Among other OECD countries for which data were available, Ireland recorded the highest quarter-on-quarter GDP growth in Q2, at 3.9%, followed by Israel, at 3.6%. At the other end of the spectrum, GDP was unchanged in Austria, Belgium and Chile.
Year-on-year GDP growth in the OECD area increased to 2.3% in Q2 2026, up from 1.7% in Q1 (Table 2). Among G7 economies, the United States recorded the highest annual GDP growth, at 2.1%, while Japan recorded the lowest, at 0.5%.
Click here to access the interactive chart.
 
 
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€3.9 bn surplus for EU

Euro area
The first estimates of euro area balance showed a €8.6 bn surplus in trade in goods with the rest of the world in June 2026, compared with + €4.8 bn in June 2025.
The euro area exports of goods to the rest of the world in June 2026 were €272.5 billion, an increase of 14.4% compared with June 2025 (€238.2 bn).
Imports from the rest of the world stood at €264.0 bn, a rise of 13.1% compared with June 2025 (€233.4 bn).

In June 2026, the euro area balance registered a surplus of €8.6 bn, following a deficit of €9.0 bn in May 2026. Compared with June 2025, when the balance stood at a surplus of €4.8 bn, the latest figure represented an improvement of €3.8 bn. In the presence of a larger energy deficit, this increase was primarily driven by a higher surplus in chemicals and related products, and by surpluses in other manufactured goods as well as in food and drink. The surplus of machinery and vehicles also slightly improved.

€3.9 bn surplus for EU

In January to June 2026, the euro area recorded a surplus of €9.8 bn, compared with €82.2 bn in January-June 2025.
The euro area exports of goods to the rest of the world fell to €1 487.2 bn (a decrease of 0.2% compared with January-June 2025), and imports rose to €1 477.4 bn (an increase of 4.9% compared with January-June 2025).
Intra-euro area trade rose to €1 408.2 bn in January-June 2026, up by 4.7% compared with January-June 2025.
European Union
The EU balance showed a €3.9 bn surplus in trade in goods with the rest of the world in June 2026, compared with +€5.2 bn in June 2025.
The extra-EU exports of goods in June 2026 were €241.5 billion, up by 12.5% compared with June 2025 (€214.7 bn).
Imports from the rest of the world stood at €237.7 bn, up by 13.5% compared with June 2025 (€209.5 bn).

In June 2026, the EU balance registered a surplus of €3.9 bn, following a deficit of €13.9 bn in May 2026. Compared with June 2025, when the balance stood at a surplus of €5.2 bn, the latest figure represented a deterioration of €1.3 bn. This deterioration was primarily driven by a larger energy deficit, partly offset by a wider surplus in chemicals and related products.

In January to June 2026, the EU recorded a deficit of €14.9 bn, compared with €74.1 bn in January-June 2025.
The extra-EU exports of goods fell to €1 317.0 bn (a decrease of 2.1% compared with January-June 2025), and imports rose to €1 331.9 bn (an increase of 4.7% compared with January-June 2025).
Intra-EU trade rose to €2 200.6 bn in January-June 2026, +5.7% compared with January-June 2025.
Annex – Seasonally adjusted data
In June 2026 compared with May 2026, euro area seasonally adjusted exports increased by 0.9%, while imports decreased by 2.1%. The seasonally adjusted balance was €1.8 bn, an increase compared with May (€-6.1 bn).
In June 2026 compared with May 2026, EU seasonally adjusted exports increased by 0.4%, while imports decreased by 2.1%. The seasonally adjusted balance was €-4.9 bn, a narrowing compared with May (€-10.8 bn).
In April-June 2026, euro area exports rose by 5.6%, while imports rose by 8.6%. Intra-EA trade rose by 3.9%.During the same period, EU exports increased by 5.4%, while imports rose by 9.9%. Intra-EU trade increased by 4.0%
Click here to access the interactive charts and tables.

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Blog | The rise of AI has driven a blistering rally in the tech sector, bringing stock market valuations to levels last seen during the dot-com bubble. Although AI is reshaping the economy, do today’s high valuations bear the risk of an abrupt and painful setback in the euro area?
Valuations on the US stock market, as measured by the CAPE ratio, are currently close to their historical peak.[1] Euro area equity valuations have also risen, albeit to a lesser extent (Chart 1). Markets on both sides of the Atlantic reflect investors’ enthusiasm about artificial intelligence (AI) shaping the economy and driving profits. The extremely optimistic valuations raise questions: do today’s stock market prices reflect a rational bet on the transformative technology? Or are we seeing a remake of the dot-com bubble? We argue that economic research on past technological revolutions points to a worrisome conclusion: a correction of current stock market valuations is likely.
A sharp stock market correction would have severe consequences for the euro area, through two channels. One is euro area investors’ direct exposure to the Magnificent Seven stocks (hereafter Mag7) and the other is the degree of overexuberance in euro area stock markets themselves.[2] This post explains why a correction should be expected even if current valuations are rational, why that matters not only to the shareholders who would take the direct hit, and what it implies for the euro area specifically.
Chart 1
US and euro area stock market valuations

a) S&P 500 Index (cyclically adjusted price-to-earnings ratio)

b) Euro area Market Equity Index (cyclically adjusted price-to-earnings ratio)

(Index)

(Index)

Source: Datastream
Notes: Price-earnings ratio (monthly) from 1980 to 2026. Numerator: real (inflation-corrected) S&P Composite Stock Price Index (panel a) and Euro Stoxx 50 Price Index (panel b). Denominator: moving average over preceding ten years of real S&P Composite (panel a) and Market Equity (panel b) earnings.

Why do technological revolutions so often end in a boom and bust?
The current excitement surrounding AI has many historical precedents. To name just a few: the railway boom of the 19th century, the expansion of electricity and radio in the 1920s and the surge of the internet, or the “dot-com era”, in the 1990s. In each case, a genuinely transformative technology attracted investment, and the stock market valuations of firms that adopted it rose strongly before falling sharply. Economic research offers two complementary explanations.
First, the rational view argues that high valuations can be justified by extreme uncertainty about a new technology’s productivity.[3] Why has Nvidia’s share price risen 20-fold since 2022? Because investors rationally perceived that the company would become the next Google – with a highly uncertain and potentially large upside. In the worst case in such a scenario, investors lose their investment. But in the best case, the gains are large and genuinely hard to bound. This “option value” increases the stock valuations of early adopters, causing their price-to-earnings ratios to rise sharply.
Even if the technology succeeds, stock prices may eventually fall. Why? The nature of uncertainty shifts from a “single sector” to the “entire” economy. Initially, the new technology is like a small-scale experiment. If it fails, it’s unfortunate for that company, but the rest of the economy is unaffected. The risk can be diversified away. As adoption spreads, the same uncertainty becomes economy wide. If something then goes wrong with that technology, the whole economy suffers. This risk cannot be diversified, so investors demand a higher risk premium. However, this does not necessarily mean that profits will fall. Adoption itself is good news for cash flows, but the rising risk premium has the opposite effect and tends to prevail historically (Chart 2, blue line), unless profit growth is strong enough to compensate for that (Chart 2, yellow line). The exact timing is unknowable in advance. These boom-bust patterns are only identifiable with hindsight.
The second explanation for technology-driven boom and bust is the behavioural view. It holds that overconfident, overoptimistic investors bid up prices beyond fundamentals (see Chart 2, red line).[4] When overconfidence fades, prices can fall even more sharply than in the rational scenario.
Both views imply a boom followed by a correction, or a pullback from wherever valuations have risen, at some point in the future. This does not mean that today’s prices represent a ceiling. If AI proves to be transformative enough, valuations could still be much higher in the future, even after a correction. As mentioned previously, it is impossible to know in advance where we stand on this path. Furthermore, the case for expecting a correction is not dependent on whether today’s prices are rational or irrational. We should be aware of that and prepare. The rest of this blog post considers two ways in which such a correction might affect the euro area – wealth effects for euro area investors in US stocks and contagion to euro area stock markets.

Chart 2
Stylised boom-bust scenarios

(Index)

How exposed is the euro area to a fall in Mag7 prices?
The dominance of the Mag7 on widely held global indices (e.g. MSCI World) carries significant risks for euro area investors. Panel a) of Chart 3 shows that most euro area exposures to the Mag7 are via investment funds – mutual funds and exchange traded funds (ETFs) – rather than direct holdings. Using data on the underlying mutual fund investors, we can identify which euro area investors carry the greatest exposure to US technology equities (Chart 3, panel b). Euro area households, which are increasingly channelling funds into low-cost ETFs, have around €440 billion of exposures to US technology equities without necessarily being aware of the associated concentration risk. Insurance companies and pension funds also hold significant exposures to the Mag7.
This fund-based structure is itself a transmission channel. A sharp correction can force funds to sell assets to meet redemptions – first, liquid holdings and then, if the correction persists, distressed assets – pushing valuations down further and triggering more redemptions. This is why a Mag7 correction is a question of financial stability for the euro area, rather than just a private one. The more severe scenario is not the equity correction on its own but a correction that coincides with broader market instability that policymakers cannot easily calm: unlike in the dot-com episode, today’s starting point leaves markedly less room to cut interest rates or use fiscal policy to cushion the fallout.
Chart 3
Euro area investors’ Mag7 exposures

a) Direct exposures

b) Indirect exposures

(EUR billions)

(EUR billions)

Sources: ECB (SHSS and SHS-Look-through) and authors’ calculations.
Note: Holding amounts of the five largest investors in the euro area (market values, Q3 2025).

Is there overexuberance in euro area stock markets?
Beyond this exposure to the Mag7, is there also a risk of a home-grown correction? While euro area equity prices have risen substantially in recent years (Chart 1, panel b), valuation metrics such as price-to-earnings ratios remain considerably lower than in the United States (Chart 1, panel a). The euro area macroeconomic environment in the information and communication technology sector currently appears resilient compared with the times of the dot-com bubble. Productivity and markups in the sector are rising, the business climate in euro area digital services does not seem exuberant and euro area firms’ AI adoption is rising notably, only a few years after the launch of ChatGPT in 2022. The global AI boom has also sparked an ongoing and profound digital transformation across the euro area. The overall increase in digital investment in the euro area over the past decade was more than three times the cumulative growth in GDP over that period.
In sum, the euro area AI transformation is proceeding at a steady if unspectacular pace. On the one hand, euro area stock markets are dominated by “old economy” stocks, which show little of the AI excitement that we see in the US Mag7, reducing the risk of a future correction. On the other hand, euro area and US stock markets have historically been very highly correlated, meaning that a US correction will not leave the euro area unaffected.
Conclusion
Historical experience suggests that technological revolutions carry risks of a boom-bust cycle in asset prices, and this risk does not depend on today’s valuations being rational or irrational. The euro area’s smaller, less richly valued tech sector limits the risk of a home-grown crash. But this offers little reassurance: households, insurers and pension funds have significant exposures through global index trackers, and US equity stress has historically also had an impact on euro area stock markets. The effects of a US correction could extend beyond financial markets to euro area sentiment, financing conditions and hiring. A US AI fallout would not remain a US problem.
The views expressed in each blog entry are those of the author(s) and do not necessarily represent the views of the European Central Bank and the Eurosystem.

The CAPE (cyclically adjusted price-to-earnings) ratio was developed by Robert Shiller. The S&P 500 CAPE is a measure of stock market valuations that compares share prices of the leading 500 US-listed companies with average inflation adjusted earnings over the previous ten years.

The Magnificent Seven stocks are a group of high-performing and influential companies in the US stock market: Alphabet, Amazon, Apple, Tesla, Meta Platforms, Microsoft and NVIDIA.

See Pástor, Ľ. and Veronesi, P. (2009), “Technological revolutions and stock prices”, American Economic Review, 99(4), pp. 1451-1483.

See, for example, Scheinkman, J. A. (2014), Speculation, trading, and bubbles, Columbia University Press, and Hong, H. and Stein, J. C. (2007), Disagreement and the stock market, Journal of Economic Perspectives, 21(2), pp.109-128.

 
 
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Governments have good reasons to use tariffs or sanctions for geopolitical purposes but should consider the trade-offs.
Governments worldwide increasingly are using economic policies, such as export bans, financial sanctions, and trade tariffs, to achieve noneconomic goals. The benefits of these geoeconomic policies can be significant, accomplishing a geopolitical purpose without threatening, or using, military force—and without the high human and economic costs of war. Perhaps the world should welcome this.
Yet coercive policies can be costly for nations that impose them. As appealing as it may be to use economic policies for coercive purposes, sometimes the benefits are not worth the cost.
Close connection
International politics and international economics have always been closely intertwined. The age of mercantilism that prevailed from the 15th to the early 19th centuries was explicitly organized around the interaction of economic and military prowess. In his 1618 work A Discourse of the Invention of Ships, Anchors, Compasse &c, the explorer Sir Walter Raleigh, a theorist and practitioner of English mercantilism, opines, “Whosoever commands the sea commands the trade; whosoever commands the trade of the world commands the riches of the world, and consequently the world itself.”
Mercantilist policies used military control over shipping routes and colonies to extract resources from trading partners and overseas possessions and used those resources to finance additional military spending. For several hundred years, the major powers’ conflicts and alliances were reflected in both their military and economic relations.
As Britain led the rich countries of Europe away from mercantilism and toward freer trade and financial flows in the early 19th century, the European powers increasingly separated economic policymaking from great-power politics. There were still occasional blockades and embargoes, and economic policies were often used as an instrument of colonial control. But the prevailing ideology and practice tended to keep economic and military policies relatively separate. This era of free trade saw very rapid economic growth by historical standards, which seemed to confirm the wisdom of divorcing economic from diplomatic relations.
However, as countries strove to catch up to Britain in the late 19th and early 20th centuries, geopolitical contention and a race for colonies brought geoeconomics back to the fore. Colonial powers tightened their control over their empires, Germany carved out a sphere of economic and political interest in central Europe, and the United States cemented its predominance in the Western Hemisphere during a period of rising economic nationalism that has parallels today.
The Cold War reinforced the connection between geopolitics and economics: The Western powers largely sealed off the Soviet Union and its allies from international trade and investment even as Western international economic integration grew dramatically. For their part, the Soviets and their allies, along with China, showed little interest in the world economy.
The end of the Soviet Union and the Cold War, along with the onset of full-scale globalization in the late 1980s and early 1990s, led most governments to conduct their international economic relations with little concern for military or other geopolitical considerations. As China and Vietnam, and later the former Soviet republics and their allies, joined the world economy, it seemed that global acceptance of economic integration had overcome the worst features of great-power politics.
Expectations at the start of the new millennium that international politics and international economics would stay separate have turned out to be wrong. Renewed competition among the major powers has encompassed their economic relations—think Western sanctions on Russia and ongoing trade conflicts between China and the United States. The global pandemic highlighted fears that long and complex supply chains could jeopardize countries’ access to essential goods. The full-scale Russian invasion of Ukraine has brought major military conflict to Europe in ways that many considered unthinkable. It is hardly surprising that governments are using economic policies to address the rising geopolitical tensions they face.
Benefits of coercion
Governments have good reasons to use economic policies for geopolitical purposes. Sanctions, embargoes, tariffs, and other such measures can coerce adversaries without the threat or use of force. They can impose costs on target countries and governments, induce powerful groups abroad to pressure their own governments to change course, and persuade allies to collaborate in compelling an adversary to make concessions.
The appeal of geoeconomic policies can be clear, although they may be difficult to measure. Many geopolitical goals are hard to quantify, and hard even to think of in monetary terms. How much is national security worth? What is the value of isolating an adversary, cementing an alliance, staving off a potential attack, avoiding a disastrous war?
While the benefits of geoeconomic policies may be intangible, many of the costs are more directly economic and amenable to analysis. Policymakers, analysts, and constituents should think about the trade-offs involved, about what a country may be giving up when it imposes sanctions or tariffs for geopolitical purposes. This does not mean that such policies should be avoided—only that both their benefits and their costs should be considered.
Coercive economic policies typically impose costs on the country that uses them. Those costs come in many varieties: Some examples follow.
Costs to economic efficiency. Almost by definition, geoeconomic policies move a country’s economy away from its most productive purposes. Restricting imports limits the country’s access to goods more efficiently produced elsewhere; restricting exports limits the country’s access to profitable foreign markets. Measures that restrict the movement of goods and capital can compromise a country’s comparative advantage and reduce its productive efficiency. This was, after all, the argument of pro-trade economists from Adam Smith to David Ricardo and John Maynard Keynes. As Keynes wrote, “The community as a whole cannot hope to gain by making artificially scarce what the country wants.”
Governments pursue geoeconomic policies because they are willing to sacrifice aggregate (economic) welfare for geopolitical purposes. Within this objective, there are specific constraints that highlight the trade-offs geoeconomic policy entails.
Costs to specialization. Specialization is central to productivity and economic growth. The division of labor is central to broader economic efficiency and, as Adam Smith wrote, “The division of labor is limited by the extent of the market.” Purposely giving up a broader market limits how much a national economy can usefully specialize.
There is a more explicit trade-off. More specialized economic activities are both particularly valuable and particularly vulnerable. They are valuable because specialized production is especially profitable, given its scarcity and specificity. They are vulnerable because the scarcity and specificity of specialized production also make it harder to replace. The more specialized the productive activity, the greater the challenge in doing without it—and the more dangerous it is to rely on it.
Governments will thus try to avoid dependence on the more specialized products of other nations. Diversifying economic ties provides some protection against economic and geopolitical shocks and helps limit vulnerability. But it can also limit an economy’s efficiency and that of its trading partners.
Costs to innovation. Just as artificially limiting a country’s market reduces its ability to specialize, it also reduces its incentives to innovate. Producers invest in research and development to gain advantages in markets, and the larger the market and the fiercer the competition, the greater the reason to do so.
On the other hand, export controls that restrict a target economy’s access to technology give the target strong reasons to innovate. Nazi Germany developed synthetic rubber and methadone when faced with an Allied blockade that cut it off from natural supplies of rubber and opium. While this may not have been the most efficient use of German resources, it did counteract the impact of the geoeconomic policies. More recent evidence shows that sanctioned countries have invested heavily in innovation: Russia, China, and Iran have all responded to sanctions by ramping up research and development to try to replace goods no longer available.
Costs to credibility. A country’s good reputation is valuable: It encourages other countries to commit to potentially risky arrangements in trade, finance, and investment. If geoeconomic policies such as sanctions and asset freezes violate implicit or explicit contracts, it causes other countries to question whether they can trust commitments with those imposing such policies. As trust erodes, other governments and private companies are less willing to risk economic commitments that might be violated. This can deprive a country of valuable trade, investment, and financial ties—many of which rely on partners’ reputation for reliability.
Costs to domestic politics. The costs and benefits of geoeconomic policies may not be evenly distributed within the population, which can lead to domestic political conflict. The negative effects of sanctions or export controls, for example, may be severe for businesses that lose important and profitable economic ties. On the other hand, successful geoeconomic policies may create particularly profitable opportunities for companies and industries that gain market access or favorable treatment. Domestic businesses that suffer from the imposition of geoeconomic policies may resent those that benefit from their success. Such policies may thus be harder to impose, less credible, or more politically controversial. The last thing national leaders want when they pursue what they regard as key geopolitical policies is domestic political backlash—and so they need to pay close attention to the domestic social costs of these policies.
Complete picture
Governments often adopt coercive economic policies in the midst of an immediate geopolitical struggle. The understandable focus on the near-term geopolitical goal—extracting concessions, forestalling harm—can obscure the longer-term economic costs. It may be difficult, in the heat of geopolitical conflict, for policymakers to keep in mind that sanctions can inflict lasting damage to the financial or commercial reputation of the sanctioner, damage that could outweigh the temporary geoeconomic advantage gained.
Geoeconomic policies may engender desirable behavior in other countries, but they have costs and involve trade-offs. Policymakers, analysts, and citizens need a clear picture of these costs. Geoeconomic policies can limit the efficient functioning of the economy, reducing incentives to specialize for maximum national productive efficiency. They can discourage domestic innovation but stimulate such activity by foreign rivals. They limit the activities available to national firms and industries. They can affect a country’s reputation for reliability and may damage its long-term economic prospects. And they may harm some industries or groups in the sending nation in favor of others, in ways that may be politically controversial.
Geoeconomic policies are a valuable tool of foreign policy whose benefits may be substantial, especially if they help avoid military conflict. There are times, however, when the costs may outweigh the benefits. We need a clear picture of the costs before we can determine whether the net benefits are positive.
 
 
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Overall, 92% of companies with physical points of sale accept cash
Cash acceptance rebounds after decline observed during and after pandemic
Cash widely valued for privacy and reliability, while acceptance of mobile payments rises sharply

According to the latest survey on the use of cash by companies in the euro area published today by the European Central Bank, cash acceptance has rebounded slightly.
In 2026, 92% of companies selling goods and services in physical locations in the retail trade, restaurants and cafés, hotels, and arts, entertainment and recreation sectors reported that they accept cash. This compares with 90% in 2024, suggesting that cash acceptance has rebounded after the decline observed during and after the pandemic.
Overall, cash is the most widely accepted payment method in the euro area. Acceptance of card payments remained broadly stable at 88% between 2024 and 2026, while acceptance of mobile payments rose sharply from 36% to 68% of companies over the same period.
At the same time, 25% of companies in the euro area report that they have taken steps to promote digital payments. The measures include investing in tills that accept cashless payments or reducing the number of tills that accept cash. In the euro area, 13% of companies have introduced self-checkout terminals.
When deciding which payment methods to accept, companies most often cite consumer preference, security and ease of handling as the main considerations. Compared with digital payment methods, they continue to see major advantages in accepting cash, such as privacy and reliability.
The survey covered 8,205 companies across all 21 euro area countries. Interviews were conducted between February and April 2026.
 
 
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From 12 August 2026, new rules on packaging and packaging waste apply in the EU. This will change the way products are packaged to protect the environment and people’s health. It will also create opportunities for businesses.
Packaging uses large quantities of raw materials and generates waste that ends up in landfills or the sea. Some chemicals used in packaging can also be harmful. The new rules address these issues by setting requirements for the manufacturing and composition of all packaging placed on the EU market. They also require packaging to be reusable or recoverable, meaning it can be used again or turned into something else after use. From 2030, certain single-use packaging will be banned where more sustainable alternatives are available, such as small ketchup packets or mini shampoo bottles in hotels.
The new measures will make packaging

less wasteful: plastic packaging must be made in part from recycled content, with increasing targets for 2030 and 2040
fully recyclable: all packaging must be recyclable by 2030, so its components can be used for something else afterwards
clearly labelled: clear labels and colours make it easier to sort trash for recycling – showing what it is made of, where to bin it, and how to return it for reuse
smarter: unnecessary packaging and empty space in deliveries will be reduced
easier to re-use, refill and collect: deposit and return systems will be boosted. Companies must make reuse or refill options available whenever possible, with no extra charge
fairer and safer: brands using non-recyclable or environmentally harmful materials will have to pay to clean them up. Harmful and cancer-causing ‘forever’ chemicals (PFAS) will be restricted in food packaging

The EU is working to protect and improve the environment and build a more circular, sustainable, and competitive economy. The law on packaging addresses the environmental challenges caused by packaging waste, harmonises rules for businesses across the single market, and creates opportunities for businesses involved in recycling and sustainable packaging solutions.
 
 
Compliments of the European Commission The post European Commission | New Packaging Rules for Less Waste and Easier Recycling first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.