Integrated assessment of economic vulnerability in the European Union: A multi-criteria sensitivity-adaptability approach (2000-2023)

Abstract

With the increasing frequency and magnitude of global shocks (financial crises, pandemics, geopolitical conflicts), traditional macroeconomic indicators are proving insufficient to assess how national economies respond to and recover from external shocks. There is an urgent need to develop a comprehensive tool that simultaneously captures the sensitivity of economies to shocks and their adaptive capacity. The aim of the study was to develop and apply an integrated economic vulnerability index for European Union countries for the period 2000-2023 to comprehensively assess their structural weaknesses. To achieve this goal, a multifactor sensitivity-adaptability model was used, combining 29 macroeconomic indicators from the real, financial, public, and external sectors. To increase the objectivity of the assessment, multiple objective weighting methods were applied, including Entropy, CRITIC, and Gini indices. A new assessment approach has been developed that quantitatively reflects the economy’s capacity for self-recovery and flexibility, unlike models with fixed weightings. Significant heterogeneity in levels of economic vulnerability and resilience among European countries has been identified, driven by structural and macroeconomic factors. In particular, the Netherlands, Germany, and Estonia show lower vulnerability due to industrial diversification and financial sector resilience, while Romania, Greece, and Italy are the most vulnerable. The key systemic drivers of vulnerability are identified as the current account balance, foreign trade dynamics, industrial value added, and banking sector capitalisation, which consistently dominate in all objective weighting methods. The critical role of integrating multiple weighting methods to ensure reliable and nuanced vulnerability assessments in heterogeneous economies has been confirmed. The research results provide experts (government agencies, international organisations) with practical recommendations for developing context-oriented strategies to reduce systemic risks and increase the long-term sustainability of the real sector.