Europe supplied the week’s clearest economic signal. According to Eurostat, euro area GDP rose 0.4% in the second quarter from the previous quarter, while employment increased 0.1%. Yet European Central Bank — Statistical Press Releases reports that the cost of new corporate borrowing climbed 15 basis points to 3.79% in June. The expansion is real, but financing conditions still deserve attention.
Growth and credit tell different parts of the story
The growth figures improve the near term picture without describing a boom. Eurostat records year on year GDP growth of 1.0% in the euro area and employment growth of 0.5%, showing output advanced faster than jobs. Productivity is output per worker or hour. When production rises more quickly than labour input, productivity may improve, although these headline data alone cannot establish why.
Credit offers a separate lens on the same economy. In European Central Bank — Statistical Press Releases, mortgage rates were broadly unchanged at 3.51%, while rates on new consumer loans fell 12 basis points to 7.50%. Interest rates are the price of borrowing. Higher rates normally discourage some investment and spending because future returns must cover a larger financing bill, so growth can continue even while particular borrowers face restraint.
Subsidies complicate the trade balance
Global imbalances have again become a policy question. According to European Central Bank — The ECB Blog, they rose to 3.7% of world GDP in 2025, while China recorded a record current account surplus. A current account measures a country’s trade in goods and services plus income flows. A surplus means national saving exceeds domestic investment, with the difference effectively financed abroad.
The analysis in European Central Bank — The ECB Blog says subsidies are increasing globally, are particularly significant in China, and correlate with stronger export performance in strategic sectors. A subsidy lowers a producer’s effective cost, which can support output or exports, but correlation alone does not establish how much subsidies created the observed trade pattern. The policy challenge is distinguishing legitimate industrial support from measures that distort competition.
Why productivity can outrun wages
Productivity growth does not automatically appear in pay packets. Bank of Japan examines Japan’s deflationary period and identifies deflation, job security concerns and rigid wage setting as contributors to a gap between productivity and wages. Productivity measures how much output labour produces. Wages can lag when firms and workers resist nominal pay changes or when employees accept lower pay growth in exchange for perceived employment stability.
The paper’s broader lesson concerns reallocation. According to Bank of Japan, easing labour market frictions could lift wages and aggregate productivity by allowing workers to move toward more productive uses. Labour reallocation is the movement of workers across jobs, firms or sectors. In the standard mechanism, easier movement lets expanding firms attract talent and gives workers more bargaining options, though institutions and worker protections shape the outcome.