EUROPEAN CENTRAL BANK MONTHLY BULLETIN EN 08 1 2013 MONTHLY BULLETIN AUGUST 01 1 2013 02 1 2013 03 1 2013 04 1 2013 05 1 2013 06 1 2013 07 1 2013 08 1 2013 09 1 2013 10 1 2013 11 1 2013 12 1 2013 MONTHLY BULLETIN AUGUST 2013 In 2013 all ECB publications feature a motif taken from the €5 banknote. © European Central Bank, 2013 Address Kaiserstrasse 29 60311 Frankfurt am Main Germany Postal address Postfach 16 03 19 60066 Frankfurt am Main Germany Telephone +49 69 1344 0 Website ecb.europa.eu Fax +49 69 1344 6000 This Bulletin was produced under the responsibility of the Executive Board of the ECB. Translations are prepared and published by the national central banks. All rights reserved. Reproduction for educational and non-commercial purposes is permitted provided that the source is acknowledged. The cut-off date for the statistics included in this issue was 31 July 2013. ISSN 1561-0136 (print) ISSN 1725-2822 (epub) ISSN 1725-2822 (online) EU catalogue number QB-AG-13-008-EN-C (print) EU catalogue number QB-AG-13-008-EN-E (epub) EU catalogue number QB-AG-13-008-EN-N (online) 3 ECB Monthly Bulletin August 2013 CONTENTS EDITORIAL 5 ECONOMIC AND MONETARY DEVELOPMENTS 1 The external environment of the euro area 7 Box 1 The introduction of the euro in Latvia on 1 January 2014 13 2 Monetary and fi nancial developments 15 Box 2 The perceived external fi nancing gap indicator for small and medium-sized enterprises in the euro area 19 Box 3 The results of the euro area bank lending survey for the second quarter of 2013 24 Box 4 Stock market developments in the light of the current low-yield environment 44 Box 5 Integrated euro area accounts for the fi rst quarter of 2013 49 3 Prices and costs 54 Box 6 Results of the ECB Survey of Professional Forecasters for the third quarter of 2013 59 4 Output, demand and the labour market 64 Box 7 Labour market developments in the euro area and the United States since the beginning of the global fi nancial crisis 67 ARTICLES Assessing the retail bank interest rate pass-through in the euro area at times of fi nancial fragmentation 75 A macro stress-testing framework for bank solvency analysis 93 EURO AREA STATISTICS S1 ANNEXES Chronology of monetary policy measures of the Eurosystem I Publications produced by the European Central Bank V Glossary VII 4 ECB Monthly Bulletin August 2013 ABBREVIATIONS COUNTRIES LU Luxembourg BE Belgium HU Hungary BG Bulgaria MT Malta CZ Czech Republic NL Netherlands DK Denmark AT Austria DE Germany PL Poland EE Estonia PT Portugal IE Ireland RO Romania GR Greece SI Slovenia ES Spain SK Slovakia FR France FI Finland HR Croatia SE Sweden IT Italy UK United Kingdom CY Cyprus JP Japan LV Latvia US United States LT Lithuania OTHERS BIS Bank for International Settlements b.o.p. balance of payments BPM5 IMF Balance of Payments Manual (5th edition) CD certi fi cate of deposit c.i.f. cost, insurance and freight at the importer’s border CPI Consumer Price Index ECB European Central Bank EER effective exchange rate EMI European Monetary Institute EMU Economic and Monetary Union ESA 95 European System of Accounts 1995 ESCB European System of Central Banks EU European Union EUR euro f.o.b. free on board at the exporter’s border GDP gross domestic product HICP Harmonised Index of Consumer Prices HWWI Hamburg Institute of International Economics ILO International Labour Organization IMF International Monetary Fund MFI monetary fi nancial institution NACE statistical classi fi cation of economic activities in the European Union NCB national central bank OECD Organisation for Economic Co-operation and Development PPI Producer Price Index SITC Rev. 4 Standard International Trade Classi fi cation (revision 4) ULCM unit labour costs in manufacturing ULCT unit labour costs in the total economy In accordance with EU practice, the EU countries are listed in this Bulletin using the alphabetical order of the country names in the national languages. 5 ECB Monthly Bulletin August 2013 EDITORIAL Based on its regular economic and monetary analyses, the Governing Council decided at its meeting on 1 August to keep the key ECB interest rates unchanged. Incoming information has confirmed the Governing Council’s previous assessment. Underlying price pressures in the euro area are expected to remain subdued over the medium term. In keeping with this picture, monetary and, in particular, credit dynamics remain subdued. Inflation expectations for the euro area continue to be firmly anchored in line with the Governing Council’s aim of maintaining inflation rates below, but close to, 2% over the medium term. At the same time, recent confidence indicators based on survey data have shown some further improvement from low levels and tentatively confirm the expectation of a stabilisation in economic activity. The monetary policy stance continues to be geared towards maintaining the degree of monetary accommodation warranted by the outlook for price stability and promoting stable money market conditions. It thereby provides support to a gradual recovery in economic activity in the remaining part of the year and in 2014. Looking ahead, the monetary policy stance will remain accommodative for as long as necessary. The Governing Council confirms that it expects the key ECB interest rates to remain at present or lower levels for an extended period of time. This expectation continues to be based on an unchanged overall subdued outlook for inflation extending into the medium term, given the broad-based weakness in the economy and subdued monetary dynamics. In the period ahead, the Governing Council will monitor all incoming information on economic and monetary developments and assess any impact on the outlook for price stability. With regard to the economic analysis, following a six-quarter economic contraction in the euro area, recent confidence indicators based on survey data have shown some further improvement from low levels and tentatively confirm the expectation of a stabilisation in economic activity at low levels. At the same time, labour market conditions remain weak. Looking ahead to the remainder of the year and to 2014, euro area export growth should benefit from a gradual recovery in global demand, while domestic demand should be supported by the accommodative monetary policy stance as well as the recent gains in real income owing to generally lower inflation. Furthermore, the overall improvements in financial markets seen since last summer appear to be gradually working their way through to the real economy, as should the progress made in fiscal consolidation. This being said, the remaining necessary balance sheet adjustments in the public and private sectors will continue to weigh on economic activity. Overall, euro area economic activity should stabilise and recover at a slow pace. The risks surrounding the economic outlook for the euro area continue to be on the downside. Recent developments in global money and financial market conditions and related uncertainties may have the potential to negatively affect economic conditions. Other downside risks include the possibility of weaker than expected domestic and global demand and slow or insufficient implementation of structural reforms in euro area countries. According to Eurostat’s flash estimate, euro area annual HICP inflation was 1.6% in July 2013, unchanged from June. Annual inflation rates are currently expected to temporarily fall over the coming months, owing particularly to base effects relating to energy price developments 12 months earlier. Taking the appropriate medium-term perspective, underlying price pressures are expected to remain subdued, reflecting the broad-based weakness in aggregate demand and the modest pace of the recovery. Medium to long-term inflation expectations continue to be firmly anchored in line with price stability. The risks to the outlook for price developments are expected to be still broadly balanced over the medium term, with upside risks relating to stronger than expected increases in administered prices 6 ECB Monthly Bulletin August 2013 and indirect taxes, as well as higher commodity prices, and downside risks stemming from weaker than expected economic activity. Turning to the monetary analysis, underlying money and, in particular, credit growth remained subdued in June. Annual growth in broad money (M3) decreased in June to 2.3%, from 2.9% in May. Moreover, annual growth in M1 decreased to 7.5% in June, from 8.4% in May. The annual rate of change of loans to the private sector weakened further. While the annual growth rate of loans to households (adjusted for loan sales and securitisation) remained at 0.3% in June, broadly unchanged since the turn of the year, the annual rate of change of loans to non-financial corporations (adjusted for loan sales and securitisation) was -2.3% in June, after -2.1% in May. Weak loan dynamics continue to reflect primarily the current stage of the business cycle, heightened credit risk and the ongoing adjustment of financial and non-financial sector balance sheets. The bank lending survey for the second quarter of 2013 confirms that borrowers’ risk and macroeconomic uncertainty remained the main factors restraining banks’ lending policies. At the same time, the degree of net tightening of credit standards for loans to non-financial corporations remained unchanged in the second quarter of 2013, compared with the first quarter, and declined for loans to households. Since the summer of 2012 substantial progress has been made in improving the funding situation of banks and, in particular, in strengthening the domestic deposit base in a number of stressed countries. In order to ensure an adequate transmission of monetary policy to the financing conditions in euro area countries, it is essential that the fragmentation of euro area credit markets declines further and that the resilience of banks is strengthened where needed. Further decisive steps for establishing a banking union will help to accomplish this objective. To sum up, the economic analysis indicates that price developments should remain in line with price stability over the medium term. A cross-check with the signals from the monetary analysis confirms this picture. As regards fiscal policies, in order to bring debt ratios back on a downward path, euro area countries should not unravel their efforts to reduce government budget deficits. The emphasis should be on growth-friendly fiscal strategies which have a medium-term perspective and combine improving the quality and efficiency of public services with minimising distortionary effects of taxation. To reinforce the overall impact of such a strategy, Member States must step up the implementation of the necessary structural reforms so as to foster competitiveness, growth and job creation. Removing rigidities in the labour market, lowering the administrative burden and strengthening competition in product markets will particularly support small and medium-sized enterprises. These structural reform measures are essential to bring down the currently high level of unemployment, in particular among the younger citizens of the euro area. This issue of the Monthly Bulletin contains two articles. The first article analyses the interest rate pass-through in the euro area in a context of high financial fragmentation and provides new empirical evidence on the pass-through in the four largest euro area economies. The second article presents the ECB’s macro stress-testing framework for bank solvency assessments and gives examples of how it is used for policy analysis. 9 ECB Monthly Bulletin August 2013 The external environment of the euro area ECONOMIC AND MONETARY DEVELOPMENTS oil demand. On the supply side, production losses in Libya, Nigeria and Iraq were not fully offset by increased supply from Saudi Arabia and non-OPEC countries, causing global oil supply to be lower in June. Political instability in Egypt put further upward pressure on oil prices given its importance for crude oil transport, although no production disruptions have occurred. On the demand side, oil prices rose in response to expectations of increased refinery demand as crude oil refineries return from maintenance. Over the medium term, market participants expect lower prices, with December 2014 futures prices standing at USD 100 per barrel. After declining over the past few months on aggregate, prices of non-energy commodities remained broadly stable in July 2013, amid some volatility (see Chart 3). In aggregate terms, the price index for non-energy commodities (denominated in US dollars) was about 9% lower towards the end of July 2013 compared with the same period a year earlier. 1.3 DEVELOPMENTS IN SELECTED ECONOMIES UNITED STATES In the United States, real GDP growth accelerated in the second quarter of 2013. According to the “advance” estimate by the Bureau of Economic Analysis, real GDP increased at an annualised quarterly rate of 1.7% in the second quarter of 2013, up from the downwardly revised 1.1% growth recorded in the previous three months. The increase in the second quarter was driven by personal consumption expenditure – although it had decelerated somewhat from the previous quarter – and by strong private fixed investment, in both the non-residential and residential segments. The change in inventories added 0.4 percentage point to growth. In contrast, government consumption continued to be a drag on growth for the third consecutive quarter, although the decline in the second quarter was relatively small (-0.4% annualised), given that government consumption had already contracted substantially in the previous two quarters. Net exports subtracted 0.8 percentage point from growth, reflecting buoyant import growth, which was only partly offset by rising exports. At the same time, this report included comprehensive revisions to the GDP data going back to 1929, namely methodological changes that incorporate research and development spending under non-residential investment, and changes to pension accounting that affect the personal saving rate. The new data show stronger annual average GDP growth of around 0.2 percentage point over the last ten years. In particular, growth in 2012 was revised up notably, from 2.2% to 2.8%, owing to a stronger first half of the year. Recent survey-based indicators suggest that the economy will continue to grow at a moderate pace, supported by a continued improvement in housing and labour markets, together with a gradual lessening of the drag from balance sheet repair and fiscal restraint. The July edition of the Federal Reserve System’s Beige Book showed that economic activity continued to firm up across Chart 3 Main developments in commodity prices 60 70 80 90 100 110 120 130 140 20 40 60 80 100 120 140 160 180 2008 2009 2010 2011 2012 2013 Brent crude oil (USD/barrel; left-hand scale) non-energy commodities (USD; index: 2010 = 100; right-hand scale) Sources: Bloomberg and HWWI. 10 ECB Monthly Bulletin August 2013 districts, while regional manufacturing surveys have confirmed that manufacturing activity is projected to pick up in the third quarter. The housing market recovery is set to remain robust, as evidenced by strong homebuilders’ confidence in July. Furthermore, consumer confidence stood at historically high levels in July, suggesting private consumption should remain resiliant. Annual CPI inflation increased by 0.4 percentage point to 1.8% in June, from 1.4% in May. This increase was largely due to higher energy price inflation, which moved into positive territory after three consecutive months of negative growth rates. Food price inflation remained at 1.4%, whereas core inflation fell slightly to 1.6%, from 1.7% in May, on account of subdued increases in prices for medical care and transportation services. For the second quarter of 2013 as a whole, annual CPI inflation averaged 1.4%, down from 1.7% in the fi rst quarter. Looking ahead, inflation is expected to remain contained as considerable spare capacity in the economy persists. On 31 July 2013 the Federal Open Market Committee (FOMC) decided to keep the target range for the federal funds rate at 0% to 0.25%, and anticipated that exceptionally low levels for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6.5%, inflation between one and two years ahead is not projected to be above 2.5%, and longer-term inflation expectations continue to be well anchored. As previously announced, the FOMC will continue to purchase additional agency mortgage-backed securities at a pace of USD 40 billion per month and longer-term Treasury securities at a pace of USD 45 billion per month. The FOMC is expected to slow down the current pace of asset purchases later in the year, should the economy continue to improve as expected. The asset purchase programme is then expected to end in mid-2014. JAPAN The Japanese economy continued to expand at a robust pace, with domestic demand and the external sector both contributing positively to growth. Sentiment indicators suggest further solid growth over the remainder of the year. On the domestic side, industrial production increased by 1.4% on a quarterly basis, although it dropped in June by 3.3% month on month. Growth in private consumption declined in June, although at a slower pace than in the previous month. Meanwhile, real exports and imports of goods increased in June by 2.0% and 3.1% month on month, respectively. Recent consumer and business confidence indicators showed some softness, with the manufacturing Purchasing Managers’ overall diffusion index falling to 52.3 from 54.2, indicating a slight slowdown in growth momentum in July, although the index remaind in expansionary territory for the fifth consecutive month. Consumer price inflation has maintained an upward trend since the beginning of the year, with the headline index moving out of negative territory in June 2013. Annual consumer price inflation increased to 0.2% in June, compared with -0.3% in the previous month, largely owing to increasing Table 2 Real GDP growth in selected economies (percentage changes) Annual growth rates Quarterly growth rates 2011 2012 2012 Q4 2013 Q1 2013 Q2 2012 Q4 2013 Q1 2013 Q2 United States 1.8 2.8 2.0 1.3 1.4 0.0 0.3 0.4 Japan -0.5 1.9 0.4 0.2 - 0.3 1.0 - United Kingdom 1.1 0.2 0.0 0.3 1.4 -0.2 0.3 0.6 China 9.3 7.8 7.9 7.7 7.5 1.9 1.6 1.7 Sources: National data, BIS, Eurostat and ECB calculations. 11 ECB Monthly Bulletin August 2013 The external environment of the euro area ECONOMIC AND MONETARY DEVELOPMENTS energy prices. Accordingly, annual core consumer price inflation (excluding food, beverages and energy) picked up to a lesser extent, from -0.4% to -0.2% in June. At its latest monetary policy meeting on 10 and 11 July 2013, the Bank of Japan decided to keep its target for the monetary base unchanged. Following the outcome of the Upper House election on 21 July 2013, progress is expected to proceed on structural reforms, for which targets were outlined earlier in the “Basic Policies for Economic and Fiscal Management and Reform”. UNITED KINGDOM In the United Kingdom, economic growth gained momentum in the first half of 2013. Real GDP increased by 0.6% quarter on quarter in the second quarter of this year, according to the preliminary estimate. This increase was mainly due to growth in the services sector, although the industrial and construction sectors also made positive contributions. Despite the relatively strong growth dynamic during the first half of 2013, the pace of the economic recovery is likely to remain gradual. Private and public sector balance sheet adjustment, notwithstanding recent progress, is set to constrain domestic demand for some time, while prospects for export growth remain modest. Weak household real income growth is also likely to dampen domestic demand, although labour markets have remained relatively resilient, with the unemployment rate hovering just below 8%. Housing markets, buoyed by recent policy measures, have shown signs of picking up, but credit growth dynamics have remained weak. Looking ahead, the steady improvement in the main survey indicators in recent months suggests that the recovery will continue in the short term. Annual CPI inflation has stayed relatively high amidst some volatility in recent months. This volatility has mainly been owing to one-off factors. In June 2013 the headline inflation rate increased by 0.2 percentage point to 2.9%, while CPI inflation excluding energy and unprocessed food remained steady at 2.5%. Looking ahead, it is expected that inflationary pressures will be contained by existing spare capacity in labour and capital utilisation in the medium term. However, rises in administered and regulated prices, as well as the pound sterling’s depreciation earlier this year, could put some upward pressures on inflation. At its meeting on 4 July 2013, the Bank of England’s Monetary Policy Committee maintained the policy rate at 0.5% and the size of its asset purchase programme at GBP 375 billion. CHINA In China, data releases continue to point to a slowdown in the growth momentum. Real GDP growth decelerated to 7.5% in the second quarter of 2013, from 7.7% in the first three months of the year. Growth was driven by strong investment and, to a lesser extent, consumption. The sluggish external environment is a key factor behind the loss in the growth momentum. Given China’s export-oriented economic structure, weak external demand together with the strengthening of the renminbi in the first half of the year weighed on exports, which declined in June compared with a year ago. Accordingly, manufacturing growth slowed down, as evidenced by a further decline in industrial production growth in June. Imports also declined, partly reflecting China’s close integration in global supply chains. However, other parts of the economy continued to be more robust, as confirmed by rising retail sales and continued strength in the housing market, with house prices rising across China. The flash Markit manufacturing PMI for July continued to weaken, suggesting that growth in the manufacturing sector is losing momentum. As a result, the Chinese government took steps in late July to stabilise growth, including a temporary VAT and business tax exemption for SMEs, a simplification of customs procedures and a more rapid expansion of railway construction. 12 ECB Monthly Bulletin August 2013 Annual CPI inflation stood at 2.7% in June, well below the 3.5% target for 2013, while PPI inflation has remained negative since March 2012. Credit and loan growth slowed down further in June, but remained well above nominal GDP growth. 1.4 EXCHANGE RATES In July the euro appreciated against the currencies of most of its trading partners. On 31 July 2013 the nominal effective exchange rate of the euro, as measured against the currencies of 21 of the euro area’s most important trading partners, stood 0.9% above its level at the beginning of the month, and 7.9% above the level recorded a year earlier (see Chart 4 and Table 3). In bilateral terms, in July the euro appreciated against most major currencies, including the US dollar (by 1.8%) and the pound sterling (by 2.0%), but remained unchanged against the Japanese yen. During this period the euro also appreciated against the currencies of major emerging economies, but mostly depreciated against the currencies of non-euro area EU Member States, including the Polish zloty (by 2.2%), the Czech koruna (by 0.5%) and the Romanian leu (by 1.0%). The currencies participating in ERM II remained broadly stable against the euro, trading at, or close to, their respective central rates. On 9 July 2013 the EU Council adopted a decision allowing Latvia to adopt the euro as its currency on 1 January 2014 (see also Box 1). Chart 4 Nominal effective exchange rate of the euro (daily data; index: Q1 1999 = 100) 90 95 100 105 110 115 120 90 95 100 105 110 115 120 2008 2009 2010 2011 2012 2013 Source: ECB. The nominal effective exchange rate of the euro is calculated against the currencies of 21 of the most important trading partners of the euro area. Table 3 Euro exchange rate developments (daily data; units of currency per euro; percentage changes) Weight in the effective exchange rate of the euro (EER-20) Change in the exchange rate of the euro as at 31 July 2013 with respect to 1 July 2013 31 July 2012 EER-21 0.9 7.9 Chinese renminbi 18.6 1.8 4.1 US dollar 16.8 1.8 8.1 Pound sterling 14.8 2.0 11.4 Japanese yen 7.1 0.0 35.4 Swiss franc 6.4 -0.2 2.5 Polish zloty 6.1 -2.2 3.2 Czech koruna 5.0 -0.5 2.4 Swedish krona 4.7 0.2 4.2 Korean won 3.9 0.7 7.4 Hungarian forint 3.2 1.9 7.4 Danish krone 2.6 -0.1 0.2 Romanian leu 2.0 -1.0 -3.8 Croatian kuna 0.6 0.8 -0.1 Source: ECB. Note: The nominal effective exchange rate is calculated against the currencies of 21 of the most important trading partners of the euro area.
Posted on: Wed, 28 Aug 2013 13:32:23 +0000
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