ECB’s Kazāks: China Export Wave to Europe Set to Worsen, With Implications for Monetary Policy

10 December 2025

By David Barwick – RIGA (Econostream) – Chinese exports to Europe will likely intensify further, with ramifications for euro area monetary policy, according to European Central Bank Governing Council member Mārtiņš Kazāks on Tuesday

Kazāks, who heads Latvijas Banka, told an event in the Latvian capital that the growing redirection of Chinese goods to European markets harbored deflationary potential.

“The Chinese story in terms of exports to Europe is only going to get worse, and that, of course, is going to have monetary policy implications,” he said. “As we say, it's going to get worse before it gets better.”

Beijing had “very high” excess productive capacity it needed to put to use, and Europe was exporting less from China and importing more, he observed. Brussels’ response remained open, he said.

“So, the gap is widening, and the question is going to be how economic policymakers react,” he said. “It will certainly have a deflationary element, and it may destroy some of industrial jobs here as well.”

On the current inflation outlook in the region, Kazāks sounded more sanguine.

“The inflation problem in Europe is, by and large, solved,” he said. “It's around the target, and we are in a good place in terms of monetary policy.”

“Our current 2% interest rate level is, I think, really appropriate for the situation,” he added.

The ECB is very widely expected to leave interest rates at its next monetary policy meeting a week from tomorrow.

Still, it was important to consider not only headline inflation, he said. It was “more interesting” to consider the core measure, which “is still somewhat high,” he said.

Following the turmoil that accompanied US President Donald Trump’s announcement of tariffs earlier in the year, the European economy was now looking up, he said.

“The economy is gaining traction, and the global situation is getting somewhat better as well,” he said. “We had a big fuss in the spring about the Trump tariffs, but it seems that the outcome is much less negative, though still negative overall.”

In particular, he said, “private consumption has been relatively resilient, and it is expected to pick up.” At the same time, he said, the European savings rate was quite high, holding consumption back.

The euro area’s largest economy would hopefully drive a broader economic pickup over the medium term based on intelligent deployment of the available funds, he said.

“Germany is my hope for the next three or four years, the reason being that it has the money,” he said. “Some countries have way less money than Germany, but I wouldn't want to see that in four years’ time, Germany has pushed its debt from 60% to 80% of GDP without any benefit in productivity.”

“Germany has the ability to drive the European economy now, but it needs to do it smartly,” he added. “And that's the tricky part.”

Although employment in the German automotive industry has been on the decline, this was “not necessarily that bad,” he said, given the jobs gains in defense. “[T]here could be a structural shift underway,” he said.