EB focus published in 2018

8 November 2018
The geography of the euro area current account balance

Abstract

JEL Classification

F3 : International Economics→International Finance

F4 : International Economics→Macroeconomic Aspects of International Trade and Finance

Abstract

The composition of the euro area current account balance in terms of its geographical counterparts has been fairly stable in recent years, with the euro area’s most important trading partners accounting for the largest part of the bilateral surpluses and deficits. The bulk of the increase in the euro area’s current account surplus since 2013 was accounted for by improvements vis-à-vis the euro area’s three largest trading partners. The largest changes in the geographical breakdown of the euro area current account balances were recorded for trade in goods and primary income.

Economic Bulletin Issue 7, 2018
8 November 2018
Purchases of green bonds under the Eurosystem’s asset purchase programme

Abstract

JEL Classification

G11 : Financial Economics→General Financial Markets→Portfolio Choice, Investment Decisions

G12 : Financial Economics→General Financial Markets→Asset Pricing, Trading Volume, Bond Interest Rates

Q59 : Agricultural and Natural Resource Economics, Environmental and Ecological Economics→Environmental Economics→Other

E59 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Other

Abstract

This box analyses the impact of the Eurosystem’s asset purchase programme (APP) on the growing market for “green bonds”. It describes the composition of the Eurosystem’s green bond holdings and assesses developments in prices and outstanding volumes of green bonds, before discussing the extent to which these may have been affected by the APP.

Economic Bulletin Issue 7, 2018
8 November 2018
The role of energy prices in recent inflation outcomes: a cross-country perspective

Abstract

JEL Classification

E31 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Price Level, Inflation, Deflation

Abstract

Euro area headline inflation is currently dominated by a strong contribution from energy prices. In the third quarter of 2018, energy prices contributed 0.9 percentage point to the headline HICP inflation rate of around 2.0%, thus accounting for almost half. This large contribution mainly reflects past developments in crude oil prices, a factor that constitutes a common influence across euro area countries. However, the contribution of energy to HICP inflation depends both on the share of energy in consumption expenditure and on the degree of pass-through of oil price developments to consumer energy prices. This box reviews the extent to which these features can help explain differences across euro area countries in the recent contribution of energy to overall HICP inflation.

Economic Bulletin Issue 7, 2018
8 November 2018
Investment in intangible assets in the euro area

Abstract

JEL Classification

D25 : Microeconomics→Production and Organizations

E22 : Macroeconomics and Monetary Economics→Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy→Capital, Investment, Capacity

Abstract

This box reviews the characteristics of intangible assets and looks at a number of implications of their increasing importance. It finds that investment in intangible assets has increased in importance in the euro area, both in absolute terms and relative to tangible assets. Investment in intangibles enables productivity gains and can explain part of the gap between firms’ investment in tangible assets and Tobin’s Q. At the same time, the specific nature of intangible assets poses challenges as regards the measurement of activity, profits and capital stock, as well as making it less easy to use those assets as collateral.

Economic Bulletin Issue 7, 2018
7 November 2018
Digitalisation and its impact on the economy: insights from a survey of large companies

Abstract

JEL Classification

O33 : Economic Development, Technological Change, and Growth→Technological Change, Research and Development, Intellectual Property Rights→Technological Change: Choices and Consequences, Diffusion Processes

E00 : Macroeconomics and Monetary Economics→General→General

Abstract

This box summarises the findings of an ad hoc ECB survey of leading euro area companies looking at the impact that digitalisation has on the economy. Overall, companies regard digitalisation as having a positive impact on their sales and productivity, mainly because it provides better access to customers, facilitates the sharing of knowledge and makes production processes more efficient. They also see digitalisation increasing their flexibility when it comes to price setting. Most companies, particularly manufacturers, tend to regard digitalisation as reducing costs and increasing margins, but retailers are more likely to see input costs increasing and margins being squeezed. Finally, companies report that digitalisation is having a small negative impact on employment, while emphasising the importance of retraining and upskilling.

Economic Bulletin Issue 7, 2018
27 September 2018
Liquidity conditions and monetary policy operations in the period from 3 May to 31 July 2018

Abstract

Abstract

This box describes the ECB’s monetary policy operations during the third and fourth reserve maintenance periods of 2018, which ran from 3 May to 19 June 2018 and from 20 June to 31 July 2018 respectively. Throughout this period the interest rates on the main refinancing operations (MROs), the marginal lending facility and the deposit facility remained unchanged at 0.00%, 0.25% and −0.40% respectively.

Economic Bulletin Issue 6, 2018
26 September 2018
Macroeconomic implications of increasing protectionism

Abstract

Abstract

The global trading landscape has changed rapidly in recent months. Announcements of tariffs by the US Administration and retaliation by its trading partners have raised concerns about a possible “trade war” and, potentially, a broader reversal of globalisation. On 1 March the US Administration announced tariffs of 25% on imports of steel and 10% on imports of aluminium from a wide range of countries. The first wave of tariffs relating to technology transfers on Chinese imports took effect on 6 July, followed by the announcement of retaliation in kind by the Chinese authorities. In response to the Chinese retaliation, the US Administration threatened to impose additional tariffs. In parallel, the EU and Canada implemented retaliatory measures against the US tariffs on steel and aluminium. Finally, the US Administration initiated a new investigation of imports of cars, trucks and auto parts (to determine their effects on national security) which could result in additional tariffs. Recently, however, there have also been some signs of a reduction in trade tensions resulting from a meeting between US and EU officials as well as the new NAFTA arrangements between the United States and Mexico.

Economic Bulletin Issue 6, 2018
25 September 2018
The fiscal impact of financial sector support measures: where do we stand a decade on from the financial crisis?

Abstract

Abstract

This box takes a further look at the fiscal impact of the financial sector support measures taken in the ten years since the financial crisis struck. With the euro area economy entering its fifth year of expansion, this seems like a good moment to take stock of the fiscal costs of the crisis and the extent to which the recovery has helped to recoup them. This is done by focusing on the measures’ impact on deficits and debt, and on the state guarantees granted to banks and other financial institutions. Steps have been taken since the crisis to improve the supervision of the financial sector, the orderly resolution of failing financial institutions, the sustainability of public finances and the resilience of sovereigns, for example by establishing bodies like the Single Supervisory Mechanism, the Single Resolution Mechanism and the European Fiscal Board.

Economic Bulletin Issue 6, 2018
24 September 2018
Oil prices, the terms of trade and private consumption

Abstract

Abstract

Oil prices affect private consumption through direct and indirect channels. An increase in oil prices affects households’ purchasing power directly through higher prices for oil-based energy products (e.g. petrol, heating oil). In the euro area about one-third of the economy’s total oil use is in the form of final consumption, i.e. the use by consumers of such products (Chart A). The other two-thirds comes from oil being used in the production of non-energy goods. A rise in oil prices implies an increase in the production costs of these sectors. If these costs cannot be passed on to the final prices of these goods, there will be an indirect impact on households’ purchasing power, since either wages or profits received from these sectors will be lower. Moreover, for advanced economies that produce oil (e.g. Canada, Norway, the United Kingdom and the United States) the indirect effects through wages and profits from the oil-producing sector are even more important.

Economic Bulletin Issue 6, 2018
9 August 2018
Growth synchronisation in euro area countries

Abstract

Abstract

The degree of business cycle synchronisation, both across the euro area countries as well as between the euro area and the rest of the world, is a pertinent research question. Regarding the euro area, the endogenous optimal currency area (OCA) hypothesis suggests that the degree of business cycle synchronisation among the participating countries should increase over time as a result of deepening financial and trade integration. Individual countries should thus become less exposed to idiosyncratic shocks, facilitating the effectiveness of the single monetary policy. Against this background, this box presents and analyses several measures of business cycle synchronisation both within the euro area as well as from a global perspective.

Economic Bulletin Issue 5, 2018
9 August 2018
Cyclical developments in the euro area current account

Abstract

Abstract

The euro area current account balance stood at the historically high level of 3.6% of GDP in the year up to the first quarter of 2018, slightly above the level of 3.5% of GDP recorded one year earlier. The slight increase in the current account surplus however masks significant decreases in the surplus on trade in goods (by 0.2 percentage point of GDP) as well as in the surplus on primary income (by 0.3 percentage point of GDP), which were slightly more than offset by an increase in the surplus on trade in services (by 0.5 percentage point of GDP).

Economic Bulletin Issue 5, 2018
9 August 2018
Imbalances in China: is growth in peril from a housing market downturn?

Abstract

Abstract

The Chinese economy has recently been playing a key role in the global economic recovery. Recording growth rates of more than 6.5% over the past five years, China has contributed on average one-third of total global growth. It has also become one of the euro area’s largest trading partners, accounting for almost 7% of total extra-euro area exports. While the world economy has benefited from China’s economic strength and growing importance, a downturn would also have large repercussions for global activity. In fact, imbalances in China have been identified as a key external downside risk to the euro area and world economy. One catalyst for such a risk materialising could be the housing market.

Economic Bulletin Issue 5, 2018
9 August 2018
Developments in mortgage loan origination in the euro area

Abstract

Abstract

Loans to households for house purchase appear to have grown at a moderate rate in recent years, despite very favourable financing conditions, the recovery in economic activity and dynamic housing markets. The annual growth rate of adjusted loans to households for house purchase was 2.8% in the first quarter of 2018, having increased gradually from slightly above 0% in 2014. However, when assessing loan developments, it should be noted that loan growth figures are usually reported in net terms, i.e. newly originated loans and the repayments of previously granted loans are considered together because statistics on balance sheet items are derived from stock figures. Given the long-term nature of mortgage contracts, loan repayments have a long-lasting impact on net figures, especially after a boom, and thus obfuscate the prevailing lending dynamics. Against this background, this box presents the results of a simulated portfolio approach which decomposes net lending flows into loan origination and the repayments of previously granted outstanding loans. Examining these two components separately provides a better view of current loan developments

Economic Bulletin Issue 5, 2018
7 August 2018
The role of wages in the pick-up of inflation

Abstract

Abstract

In current forecasts and projections, a pick-up in labour costs is considered an important precondition for a sustained increase in underlying inflation. However, the signals provided by different labour cost indicators have been mixed for some time. While wage growth as measured by compensation per employee or by compensation per hour worked has clearly strengthened over the past two years, unit labour cost growth, i.e. wage growth adjusted for productivity growth, has remained rather flat over the same period (see Chart A). This begs the question: which labour cost indicators provide the relevant signal for the pass-through to, and the outlook for, underlying inflation? This box tries to shed some light on this issue by analysing the transmission of two different types of macroeconomic impulse, namely certain kinds of supply and demand shock, in the context of the New Area-Wide Model, and by comparing the results with the patterns of development observed in the recent past.

Economic Bulletin Issue 5, 2018
6 August 2018
Country-specific recommendations for economic policies under the 2018 European Semester

Abstract

Abstract

Within the EU governance framework for the coordination of economic policies, the country-specific recommendations (CSRs) represent an integral part of the annual European Semester process. They provide guidance to individual EU Member States on how to address structural reform needs and macroeconomic imbalances in the following 12-18 months. CSRs are the instrument through which EU national economic policies are treated as a matter of common concern and coordinated within the Council of the European Union in accordance with Article 121 of the Treaty on the Functioning of the European Union. They therefore constitute a cornerstone of the EU’s macroeconomic imbalance procedure (MIP), whose aim is to prevent, detect and correct macroeconomic imbalances in individual countries, thereby containing risks to the smooth functioning of Economic and Monetary Union (EMU). Their timely and proper implementation is critical to reducing vulnerabilities and strengthening the economic resilience of the euro area and the EU as a whole, ultimately leading to higher growth potential in the long term. Against the background of the 2018 CSRs received by 27 EU Member States (i.e. all excluding Greece ), this box examines the policy recommendations addressed to 18 euro area countries, with the exception of those that pertain strictly to the implementation of the EU’s Stability and Growth Pact.

Economic Bulletin Issue 5, 2018
28 June 2018
Country-specific recommendations for fiscal policies under the 2018 European Semester

Abstract

Abstract

On 23 May the European Commission issued its 2018 European Semester Spring Package of policy recommendations for Member States. The package includes country-specific recommendations (CSRs) for economic and fiscal policies for all EU Member States. It also covers recommendations regarding the implementation of the European Union’s Stability and Growth Pact (SGP) for a number of countries. With regard to fiscal policies, the recommendations focus in particular on Member States’ compliance with the SGP on the basis of the Commission’s 2018 spring forecast and the Commission’s assessment of countries’ policy plans as reflected in the updates of the stability and convergence programmes released in April. This year’s European Semester exercise is important particularly with a view to avoiding any repetition of mistakes made prior to the financial crisis when sufficient fiscal buffers were not built up in economic good times and the ensuing recession was aggravated by the sudden necessity of pro-cyclical fiscal tightening. Against this background, this box examines the fiscal policy recommendations that are addressed to 18 euro area countries (i.e. excluding Greece).

Economic Bulletin Issue 4, 2018
28 June 2018
The recent slowdown in euro area output growth reflects both cyclical and temporary factors

Abstract

Abstract

Following very strong growth rates in 2017, quarterly real GDP growth in the euro area moderated to 0.4% in the first quarter of 2018. The slowdown in growth at the start of the year, which appears to reflect temporary factors as well as more lasting cyclical factors, was in line with developments in economic indicators, notably survey data (see Chart A). Both the composite output Purchasing Managers’ Index (PMI) and the European Commission’s Economic Sentiment Indicator (ESI) declined throughout the first quarter of 2018. However, it is important to note that, like output growth, these indicators fell back from exceptionally high levels.

Economic Bulletin Issue 4, 2018
28 June 2018
Liquidity conditions and monetary policy operations in the period from 31 January to 2 May 2018

Abstract

Abstract

This box describes the ECB’s monetary policy operations during the first and second reserve maintenance periods of 2018, which ran from 31 January to 13 March 2018 and from 14 March to 2 May 2018 respectively. During this period the interest rates on the main refinancing operations (MROs), the marginal lending facility and the deposit facility remained unchanged at 0.00%, 0.25% and 0.40% respectively.

During the review period, the Eurosystem continued to purchase public sector securities, covered bonds, asset-backed securities and corporate sector securities as part of its asset purchase programme (APP), with a target of €30 billion of purchases on average per month. The purchases will continue at this pace until September 2018, or beyond, if necessary, and in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its inflation aim.

Economic Bulletin Issue 4, 2018
27 June 2018
The 2018 Ageing Report: population ageing poses tough fiscal challenges

Abstract

Abstract

This box presents the main projection results of the 2018 Ageing Report for euro area countries. The 2018 Ageing Report, published on 25 May 2018, is the latest of the reports prepared every three years by the Ageing Working Group of the Economic Policy Committee. The report provides long-term projections of total public age-related costs and their components, which comprise pensions, health care, long-term care, education expenditure and unemployment benefits, for all EU countries over the period 2016 70. These projections are, of course, dependent on the underlying assumptions.

Economic Bulletin Issue 4, 2018
27 June 2018
Monitoring the exchange rate pass-through to inflation

Abstract

Abstract

Exchange rate developments can play an important role in shaping the outlook for HICP inflation. As a change in the exchange rate can affect consumer prices with considerable delays and as the impact can depend on the economic situation at the time, assessing the exchange rate pass-through requires constant monitoring. Between April 2017 and May 2018, the exchange rate of the euro appreciated by about 8% in nominal effective terms and by about 10% against the US dollar. This box briefly recalls how exchange rate changes are transmitted to consumer prices in the euro area. The box also looks at indicators at different stages of the pricing chain to gauge the degree of the pass-through at the current juncture. The focus is on the monitoring of the pass-through to exchange rate-sensitive components of the HICP excluding energy and food.

Economic Bulletin Issue 4, 2018
10 May 2018
Factors driving the recent improvement in the euro area’s international investment positionEconomic Bulletin Issue 3, 2018
10 May 2018
Measures of slack in the euro areaEconomic Bulletin Issue 3, 2018
7 May 2018
Implications of rising trade tensions for the global economyEconomic Bulletin Issue 3, 2018
22 March 2018
The reliability of the preliminary flash estimate of euro area GDPEconomic Bulletin Issue 2, 2018
22 March 2018
The role of seasonality and outliers in HICP inflation excluding food and energyEconomic Bulletin Issue 2, 2018
22 March 2018
Fiscal policy stance during past periods of expansionEconomic Bulletin Issue 2, 2018
22 March 2018
The European Commission’s 2018 assessment of macroeconomic imbalances and progress on reformsEconomic Bulletin Issue 2, 2018
22 March 2018
Liquidity conditions and monetary policy operations in the period from 1 November 2017 to 30 January 2018Economic Bulletin Issue 2, 2018
22 March 2018
Recent developments in part-time employmentEconomic Bulletin Issue 2, 2018
21 March 2018
Are the recent oil price increases set to last?Economic Bulletin Issue 2, 2018
19 March 2018
Euro area sovereign bond market liquidity since the start of the PSPPEconomic Bulletin Issue 2, 2018
8 February 2018
Recent house price increases and housing affordabilityEconomic Bulletin Issue 1, 2018
6 February 2018
Consumption of durable goods in the ongoing economic expansionEconomic Bulletin Issue 1, 2018
5 February 2018
The macroeconomic impact of the US tax reformEconomic Bulletin Issue 1, 2018