Some indicators suggest this is feeding into the trade outlook. The manufacturing PMI for the euro area fell to a two-year low in October, with exportoriented economies recording particularly large drops. New export orders contracted for the first time since 2013. The second condition is if uncertainty about external demand spills over into domestic demand through confidence and investment channels.
What policy choices should be made so as to ensure that higher path actually materializes? This second, technical, question can be answered – at least in the abstract – through the tools of public finance. Consider some feasible allocation. What prevents that feasible allocation from emerging as an equilibrium outcome?