Sectoral specialisation in the EU a macroeconomic perspective

Sectoral composition influences the
characteristics of an economy’s (aggregate)
business cycle - such as its length and
amplitude - and may affect the transmission of
shocks in various ways. This section aims at
providing indications of the extent to which
business cycle developments over the period
1980-2001 were driven by changes in the
sectoral composition in EU countries. This
section also aims at evaluating to what extent
the business cycle - in particular the
synchronisation of cycles - in EU countries was
driven by developments within sectors rather
than by an aggregate change of the economic
dynamics. However, it is more the different
characteristics of sectors - and their evolution -
that are of importance for the explanation of
business cycle dynamics than the change in EU
countries’ sectoral composition.

The importance of sectoral specialisation for
EU countries’ business cycles is discussed in
four steps. First, the general characteristics of
the euro area/EU business cycle are presented.
Second, sectoral volatility is analysed and its
evolution over time discussed; this may be
related to the change in sectoral composition as
one possible force for changes in aggregate
behaviour. Third, business cycle
synchronisation is discussed, both from an
aggregate and a sectoral point of view and the
different contributions from sectoral cyclical
convergence will be analysed. Finally, the issue
of sectoral co-movement - i.e. the phenomenon
of sectors moving up and down simultaneously
- will be presented.

3.1 SECTORAL DETERMINANTS OF THE EURO
AREA CYCLE

Economic activity in the euro area as well as in
the EU as a whole was characterised during the
1990s by a succession of three relatively short-
lived cycles,³⁹ with the EU cycle being
somewhat less volatile than the euro area cycle,
at least at the start of the 1990s. In particular,
three full peak-to-peak cycles can be identified
for the euro area countries during the 1990s
(see Chart 8, left panel)⁴⁰:

39 The discussion in this section focuses on the 1990s only for
comparative purposes, given the absence of sufficient data for
the 1980s.

40 See also the article entitled “Characteristics of the euro area
business cycle in the 1990s” in the July 2002 issue of the ECB’s
Monthly Bulletin.

Chart 8 The EU and euro area business cycle in the 1990s

— Euro area

..... EU

Sources: Eurostat, NCB, ECB calculations.

Notes: For data availability reasons, the euro area aggregate comprises Belgium, Germany, Spain, France, Finland, the Netherlands, Italy and
Austria. The EU aggregate includes, in addition to these euro area countries, Denmark, Sweden and the UK. Data range from 1990 to 2001
for the quarterly indicator and from 1990 to 2000 for the m onthly industrial production indicators.

ECB

Occasional Paper No. 19
July 2004

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