By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member José Luis Escrivá said Wednesday that central banks had to adapt their analytical tools and communication to a world of more frequent, complex and less predictable shocks.

Escrivá, who heads Banco de España, wrote in Spanish newspaper Expansión that the old assumption of a relatively predictable economic and technological environment had become much harder to sustain.

Recent shocks, including the global financial crisis, the pandemic, inflation episodes linked to the wars in Ukraine and the Middle East, and the return of more aggressive trade policies, had shown that the global economy was operating in a different environment, he said.

“The fog that always surrounds the future has thickened,” he wrote.

Globalization had not disappeared, but its nature was changing, Escrivá said.

Rather than abrupt deglobalization, global trade flows had been reorganizing around geopolitical affinities, resilience criteria and the search for reliable partners, he said.

For the European Union, openness should remain a source of prosperity, but it had to be complemented by a greater ability to identify vulnerabilities, diversify dependencies and reinforce strategic capabilities, he said.

The EU should deepen agreements with reliable partners, including Mercosur, and strike a more demanding balance between openness and resilience, Escrivá said.

Institutional quality had also deteriorated in recent decades, he said.

This was economically relevant because evidence showed a close relationship between institutional quality and economic outcomes, especially when shocks were more frequent and complex, he said.

Technology had become central to these changes, Escrivá said.

Semiconductors, cloud computing, cybersecurity, artificial intelligence, digital infrastructure and payment systems had implications not only for productivity, but also for geopolitics, he said.

The concentration of technological capabilities in a limited number of companies or jurisdictions could create efficiencies, but also dependencies that could become vulnerabilities in a more fragmented world, Escrivá said.

The aggregate productivity impact of new technologies remained uncertain, he said.

Some studies pointed to significant productivity gains at the individual level, but the macroeconomic impact was harder to identify, leaving open whether the current technological shift would be transformative or more gradual, he said.

For central banks, the changing environment had analytical and communication implications, Escrivá said.

Understanding a more complex, interdependent and less predictable reality required tools that could better capture interactions between economic, technological, institutional and geopolitical factors, he said.

Central banks also had to sustain trust by explaining rigorous diagnoses clearly in an environment in which reality was harder to model and communicate, Escrivá said.

They should not replace democratic deliberation or resolve society’s distributional conflicts, he said.

Their role was to contribute evidence, diagnosis and analytical capacity so that citizens and policymakers could make better decisions, he said.