Monthly Bulletin August 2010
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MONTHLY BULLET INAUGUST
MONTHLY BULLET INAUGUST 2010
In 2010 all ECB publications
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European Central Bank, 2010
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This Bulletin was produced under the responsibility of the Executive Board of the ECB. Translations are prepared and published by the national central banks.
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The cut-off date for the statistics included in this issue was 4 August 2010.
ISSN 1561-0136 (print) ISSN 1725-2822 (online)
Monthly BulletinAugust 2010
ECONOMIC AND MONETARY DEVELOPMENTS 9
The external environment of the euro area 9Monetary and fi nancial developments 14Prices and costs 48Output, demand and the labour market 61Exchange rate and balance of payments developments 67
Boxes:The funding of euro area MFIs through 1 the issuance of debt securities 17The results of the July 2010 bank 2 lending survey for the euro area 22Covered bond market developments 3 and the covered bond purchase programme 32An assessment of the capital shortfall 4 revealed in the EU-wide stress-testing exercise 40Integrated euro area accounts 5 for the fi rst quarter of 2010 42Euro area house prices and the rent 6 component of the HICP 49Results of the ECB Survey of Professional 7 Forecasters for the third quarter of 2010 56The introduction of the euro in Estonia 8 on 1 January 2011 69
Oil prices their determinants and impact on euro area infl ation and the macroeconomy 75Recent developments in global and euro area trade 93Harmonised ECB statistics on euro area investment funds and their analytical use for monetary policy purposes 109
EURO AREA STATISTICS S1
Chronology of monetary policy measures of the Eurosystem IDocuments published by the European Central Bank since 2009 VGlossary XI I I
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ABBREVIATIONSCOUNTRIES LU LuxembourgBE Belgium HU HungaryBG Bulgaria MT MaltaCZ Czech Republic NL NetherlandsDK Denmark AT Austria DE Germany PL PolandEE Estonia PT PortugalIE Ireland RO RomaniaGR Greece SI SloveniaES Spain SK SlovakiaFR France FI FinlandIT Italy SE SwedenCY Cyprus UK United KingdomLV Latvia JP JapanLT Lithuania US United States
OTHERSBIS Bank for International Settlementsb.o.p. balance of paymentsBPM5 IMF Balance of Payments Manual (5th edition)CD certifi cate of depositc.i.f. cost, insurance and freight at the importers borderCPI Consumer Price IndexECB European Central BankEER effective exchange rateEMI European Monetary InstituteEMU Economic and Monetary UnionESA 95 European System of Accounts 1995ESCB European System of Central BanksEU European UnionEUR eurof.o.b. free on board at the exporters borderGDP gross domestic productHICP Harmonised Index of Consumer PricesHWWI Hamburg Institute of International EconomicsILO International Labour OrganizationIMF International Monetary FundMFI monetary fi nancial institutionNACE statistical classifi cation of economic activities in the European UnionNCB national central bankOECD Organisation for Economic Co-operation and DevelopmentPPI Producer Price IndexSITC Rev. 4 Standard International Trade Classifi cation (revision 4)ULCM unit labour costs in manufacturingULCT 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.
Monthly BulletinAugust 2010
Based on its regular economic and monetary analyses, the Governing Council at its meeting on 5 August 2010 viewed the current key ECB interest rates as appropriate and therefore decided to leave them unchanged. Considering all the new information which has become available since its meeting on 8 July 2010, the Governing Council continues to expect price developments to remain moderate over the policy-relevant medium-term horizon, benefi ting from low domestic price pressures. The available economic data and survey-based indicators suggest a strengthening in economic activity in the second quarter of 2010, and the available data for the third quarter are better than expected. Looking further ahead, and taking into account a number of temporary factors, the Governing Council continues to expect the euro area economy to grow at a moderate and still uneven pace, in an environment of uncertainty. The monetary analysis confi rms that infl ationary pressures over the medium term remain contained, as suggested by weak money and credit growth. Overall, the Governing Council expects price stability to be maintained over the medium term, thereby supporting the purchasing power of euro area households. Infl ation expectations remain fi rmly anchored in line with the aim of keeping infl ation rates below, but close to, 2% over the medium term. The fi rm anchoring of infl ation expectations remains of the essence.
Monetary policy will do all that is needed to maintain price stability in the euro area over the medium term. This is the necessary and central contribution that monetary policy makes to fostering sustainable economic growth, job creation and fi nancial stability. All the non-standard measures taken during the period of acute fi nancial market tensions, referred to as enhanced credit support and the Securities Markets Programme, are fully consistent with the Governing Councils mandate and, by construction, temporary in nature. The Governing Council remains fi rmly committed to price stability over the medium to longer term. The monetary policy stance and the overall provision of liquidity will be adjusted as
appropriate. Accordingly, the Governing Council will continue to monitor all developments over the period ahead very closely.
Turning to the economic analysis, after a period of sharp decline, euro area economic activity has been expanding since mid-2009. Euro area real GDP increased, on a quarterly basis, by 0.2% in the fi rst quarter of 2010. The available economic data and survey-based indicators suggest a strengthening in economic activity in the second quarter of 2010, and the available data for the third quarter are better than expected. Looking further ahead, and taking into account temporary effects, the Governing Council continues to expect real GDP to grow at a moderate and still uneven pace over time and across economies and sectors of the euro area. Ongoing growth at the global level and its impact on the demand for euro area exports, together with the accommodative monetary policy stance and the measures adopted to restore the functioning of the fi nancial system, should continue to support the euro area economy. However, the recovery in activity is expected to be dampened by the process of balance sheet adjustment in various sectors and labour market prospects.
In the Governing Councils assessment, the risks to the economic outlook are broadly balanced in an environment of uncertainty. On the upside, the global economy and foreign trade may recover more strongly than is now projected, thereby further supporting euro area exports. On the downside, concerns remain relating to the emergence of renewed tensions in fi nancial markets, renewed increases in oil and other commodity prices, and protectionist pressures, as well as the possibility of a disorderly correction of global imbalances.
With regard to price developments, euro area annual HICP infl ation increased to 1.7% in July, according to Eurostats fl ash estimate, from 1.4% in June, most likely owing to upward base effects in the energy and food components. In the next few months, annual HICP infl ation rates are expected to display some further volatility around the current level. Looking
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further ahead, in 2011 infl ation rates should remain moderate overall, benefi ting from low domestic price pressures. Infl ation expectations over the medium to longer term continue to be fi rmly anchored in line with the Governing Councils aim of keeping infl ation rates below, but close to, 2% over the medium term.
Risks to the outlook for price developments are broadly balanced. Upside risks over the medium term relate, in particular, to the evolution of commodity prices. Furthermore, increases in indirect taxation and administered prices may be greater than currently expected, owing to the need for fi scal consolidation in the coming years. At the same time, risks to domestic price and cost developments are contained. Overall, the Governing Council will monitor closely the future evolution of all available price indicators.
Turning to the monetary analysis, the annual growth rate of M3 turned positive and was 0.2% in June 2010, after -0.1% in May. The annual growth rate of loans to the private sector increased slightly further but, at 0.3%, remained weak. Together, these data continue to support the assessment that the underlying pace of monetary expansion is moderate and that infl ationary pressures over the medium term are contained. Shorter-term developments in M3 and some of its components and counterparts have remained volatile, and this volatility may well persist.