The European Economy in 2015:
Prospects and Policy Challenges against
a Global Background
Peter Mooslechner
Oesterreichische Nationalbank
Executive Director
90. Kieler Konjunkturgespräche
Berlin, September 15, 2014
www.oenb.at
oenb.info@oenb.at
11
The European Economy in 2015:
weaker
tougher
Prospects and Policy Challenges against
a Global Background
Peter Mooslechner
Oesterreichische Nationalbank
Executive Director
90. Kieler Konjunkturgespräche
Berlin, September 15, 2014
www.oenb.at
oenb.info@oenb.at
2 2
Outline
I.
The global and European economy in 2015
Special focus: CESEE and convergence
II. Nine controversial policy challenges to be addressed
III. Some exogenous risks present on top
Special focus: Impact of sanctions on European economies
IV. Any conclusions?
www.oenb.at
oenb.info@oenb.at
3
I.
www.oenb.at
THE GLOBAL AND EUROPEAN
ECONOMY IN 2015
oenb.info@oenb.at
4
Growth perspectives 2014/2015: Once again, Europe lags
behind – why is Europe different (compared to US)?
GDP 2000Q1 - 2014Q2
Index, 2000 = 100
130
•
125
•
•
120
115
110
105
Monetary policy (QE vs.
Liquidity provision)?
Fiscal policy stance?
Is it structural?
• Labour markets?
• Banking repair?
• Too slow deleveraging
(D. Gros)?
• Country heterogeneity
across EU?
100
2000Q1 2002Q1 2004Q1 2006Q1 2008Q1 2010Q1 2012Q1 2014Q1
EA
Source: Eurostat, national Sources.
www.oenb.at
UK
US
JP
oenb.info@oenb.at
5
Recovery expected to continue clearly below (historical)
average…
GDP growth of big economies
Cyclically Adjusted Variables
in %
12
Difference to previous observation
2
Forecast
10
Forecast
1
8
0
6
-1
4
2
-2
0
-3
-2
-4
-4
-5
-6
-8
2008
2009
USA
China
Source: OECD, EC.
www.oenb.at
2010
2011
2012
Japan
Euro Area
2013
2014
2015
World
-6
2008
2009
2010
2011
2012
2013
2014
Change in Structural Balance (pp GDP)
2015
Change in Output Gap (pp pot. GDP)
Source: EC.
oenb.info@oenb.at
6
Fiscal situation improving – debt levels flatten
Budget Deficit
Debt Ratio
in %
0
in % of GDP
250
Forecast
Forecast
-2
200
-4
150
-6
-8
100
-10
50
-12
-14
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Euro Area
Source: EC.
www.oenb.at
UK
USA
0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Japan
Euro Area
UK
USA
Japan
Source: EC.
oenb.info@oenb.at
7
Low global inflation – very low in Europe
Inflation in Selected Economies
Core Inflation in Selected Economies
CPI inflation in %(yoy)
6
Core inflation in %(yoy)
4
3
4
2
2
1
0
0
-2
-4
2007
-1
2008
Japan
Source: Thomson Reuters.
www.oenb.at
2009
2010
US
2011
2012
Euro area
2013
2014
UK
-2
2007
2008
Japan
2009
2010
US
2011
2012
Euro area
2013
2014
UK
Source: Thomson Reuters.
oenb.info@oenb.at
8
Is the Eurosystem′s monetary policy “different”?
Main Refinancing Rates
Central Bank Balance Sheets
in %
6
Index, January 2007 = 100
600
5
500
4
400
3
300
2
200
1
100
0
2007
2008
2009
2010
2011
2012
2013
2014
Japan
Sweden
UK
US
Euro Area
Switzerland
Source: Thomson Reuters.
www.oenb.at
0
2007
2008
2009
Eurosystem
2010
2011
2012
Federal Reserve
2013
2014
Bank of England
Source: Thomson Reuters.
oenb.info@oenb.at
9
…but becoming increasingly “similar” now?
1.
Key interest rate cut by 20 bp to 0.05% (main
refinancing operations, MRO) & to -20%
(negative deposit facility) in June & August.
Excess Liquidity and the EON IA
in %
2.
3.
4.
5.
in € Mn.
Start purchasing non-financial private sector
2,5
assets: Asset-backed securities purchase
programme (ABSPP) + new covered bond
2,0
purchase programme (CBPP3) in October 2014.
750
650
550
Targeted longer-term refinancing operations 1,5
(TLTROs). 4 years. 7% of the total credit to non1,0
financial private sector, excl. housing. (~ €400
billion). Interest rate fixed at MROs + 10 bp. After
0,5
2 years option to repayments. If not supporting
real economy pay back.
450
350
250
150
0,0
Continue forward guidance (maintain high
accommodation). MROs and three-month
-0,5
LTROs as fixed rate tender procedures with full
2010
allotment for as long as necessary (at least until
end 2016).
Suspended sterilizing SMP (Securities Markets
Programme).
www.oenb.at
50
-50
2011
2012
Excess Liquidity (RHS)
Deposit Facility
Main Refinancing Rate
2013
2014
EONIA
Marginal Lendig Rate
Source: Thomson Reuters.
oenb.info@oenb.at
10
Market confidence is back – is it justified?
What do financial markets tell us?
Stock Markets in USA, Euro Area & Japan
Gov. Bond Yields (10y) for Selected Major Economies
Index, January 2007 = 100
in %
160
8
140
7
120
6
100
5
80
4
60
3
40
2
20
1
0
2007
2008
2009
2010
S&P 500
Source: Thomson Reuters, own Calculations.
www.oenb.at
2011
TOPX
2012
2013
2014
DJ EURO STOXX
0
2008
2009
DE
2010
ES
2011
2012
FR
IT
2013
UK
2014
US
Source: Thomson Reuters.
oenb.info@oenb.at
11
Persistent higher unemployment in Euro area – because
of…..?
U nemployment Rates in Selected Regions
in %
14
Forecast
12
10
8
6
4
2
0
2007
2008
2009
2010
2011
EA18
2012
GBR
2013
2014
2015
USA
Source: EC.
www.oenb.at
- 12 -
oenb.info@oenb.at
12
Country heterogeneity (divergence?) in the euro area
Growth disparity
Unemployment legacy
GDP Growth: 2013 vs. 2008
Unemplyment Rates in Selected Economies
Real GDP, 2008 = 100
110
in %, latest observation
60
105
50
100
40
95
30
90
85
20
80
10
75
0
EE
EL
LV AT DE MT LU NL BE
FI
SI
FR EA18 IE
IT
SK
PT
CY
ES
70
EL SI CY IT PT ES LV IE FI NL EA FR LU EE BE AT DE SK MT
Source: EC.
www.oenb.at
Unemployment Rate
Youth Unemployment Rate (< 25 Years)
Source: Eurostat.
oenb.info@oenb.at
13
I.
www.oenb.at
SPECIAL FOCUS: CESEE AND
CONVERGENCE
oenb.info@oenb.at
14
CESEE: similar hit by crisis - slower convergence process
since then
Growth Differential CESEE* vis-a-vis EU and Euro Area
in %
6
Forecast
5
4
3
2
1
0
-1
-2
-3
-4
2000
2003
2006
Difference CESEE to EU28
2009
2012
2015
Difference CESEE to EA18
Source: EC. * CESEE: BG, CZ, EE, HR, LT, LV, HU, PL, RO, SK, SI.
www.oenb.at
oenb.info@oenb.at
15
Crisis impact still very much felt in 2013
(Ball: Long-term costs of financial crisis: 8.4% (OECD-23))
www.oenb.at
oenb.info@oenb.at
16
Capital inflows slowed down
www.oenb.at
oenb.info@oenb.at
17
In the long-run: Overall impressive catch-up of CEE, Russia
and China
www.oenb.at
oenb.info@oenb.at
18
II. NINE CONTROVERSIAL
POLICY CHALLENGES TO BE
ADDRESSED
www.oenb.at
oenb.info@oenb.at
19
As a (surprising) starting point: In fact, many supporting
factors present for a (modest) recovery
● Global economic recovery
● Exchange rate depreciation
● Accommodative monetary policy stance
● Return to broadly neutral fiscal stance
● Improved financing conditions
● Improving credit supply conditions
● Low commodity prices
● Gradual labour market improvement
Why don‘t they lead to a more significant recovery???
www.oenb.at
oenb.info@oenb.at
20
1. What would an immediate monetary policy exit mean?
(“The crash is the solution”?)
Would a strong immediate hike
in interest rates (200 bp+) be a
solution?
• Asset price channel:
correction (bubbles burst?)
• Balance sheet channel:
banks need more (of
deteriorating) collateral
• Credit channel: banks
ration loans (apart from
hiking rates)
• Interest channel: works
asymmetric and non-linear
(zero lower bound)
• Exchange rate channel:
reversal of downward trend
www.oenb.at




Depressing demand
Triple-dip recession (+ deflation)
Vicious circle on balance sheets
Trade-off: financial stability vs. growth?
oenb.info@oenb.at
21
2. Inflation persistently far away from “target”
Broad-based: also core items
Not only crisis countries
EA: HICP and Core HICP
Contributions to HICP (const. T axes)
yoy
yoy
5
3,0
2,5
4
2,0
3
1,5
2
1,0
0,5
1
0,0
0
-0,5
-1
Jan-07
Jan-08
Jan-09
HICP
Source: Eurostat.
www.oenb.at
Jan-10
Jan-11
Jan-12
Jan-13
Core HICP
Jan-14
-1,0
Jan-11
Jan-12
Other Euroarea Countries
Jan-13
Jan-14
Crisis Countries (EL, ES, IT, PT, CY, IE and SI)
Source: Eurostat.
oenb.info@oenb.at
22
Deflation risks still low – inflation expectations declining
Share of groups with rate below benchmark
EA - HICP weighted COICOP groups
60%
50%
40%
30%
20%
10%
0%
1999
2002 2005
under 1%
2008 2011 2014
under 0%
Source: Eurostat, OeNB
www.oenb.at
oenb.info@oenb.at
23
3. Risk of secular stagnation?
Gradually declining growth rates
in advanced economies
Gradually declining inflation and
interest rates
Long-Term Interest Rates and Inflation Rates
in %, Average FR, DE, GB, US
14
12
10
8
6
4
2
0
1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013
Long-Term Interest Rates
Inflation Rate
Source: Thomson Reuters, IMF.
www.oenb.at
oenb.info@oenb.at
24
4. Decoupling of trade and growth?
Reason: Extra-EU imports stagnate despite recovery
Real annual growth of GDP and trade volumes (in %)
2,1%
4,7
%
Source: WTO
www.oenb.at
oenb.info@oenb.at
25
5. Rebalancing in the euro area is ongoing but asymmetric –
contributing to reemerging global imbalances
Unit Labor Costs Rebalancing
Index, 2000 = 100
140
Forecast
135
130
125
120
Current Account Rebalancing
% of GDP
10
115
Forecast
110
5
105
0
100
-5
95
2000
2002
Source: EC.
www.oenb.at
2004
2006
2008
2010
2012
Core Countries (AT, DE, NL)
Euro Periphery (IE, EL, ES, PT)
Intermediate Group (FR, IT, FI, BE)
2014
-10
-15
2000
2002
2004
2006
2008
2010
2012
Core Countries (AT, DE, N L)
Euro Periphery (IE, EL, ES, PT)
Intermediate Group (FR, IT, FI, BE)
2014
Source: EC.
oenb.info@oenb.at
26
6. Competitiveness: If China gains (or continues to gain)
market shares someone has to lose
www.oenb.at
oenb.info@oenb.at
27
7. To what extent is productivity a structural issue?
Structural reforms yield significant
gains in the medium and long run
(Varga et al, 2013).
Excessive focus on structure?
“Compared to the US, Europe has
structural strengths and
weaknesses.” (De Grauwe)
Productivity Developments 2000-2013
10,0
SVK
BGR
EST
Hourly Productivity Growth (2000‐2013)
LVA
8,0 ROM LTU
CZE
6,0
HUN
4,0
POL
SVN
MLT
PRT
2,0
ESP
EU28
CYP
IRL FIN DNK
NLD
BEL
FRA
SWE
ITA
AUT
DEU
GBR
GRC
LUX
USA
0,0
-2,0
JPN
-4,0
0,0
10,0
20,0
30,0
40,0
50,0
60,0
70,0
Hourly Productivity (€ per Hour worked)
Source: AMECO.
www.oenb.at
oenb.info@oenb.at
28
8. Is the Investment gap real?
Strong decline since the crisis (from low levels)
Stressed countries most affected
Innovation especially hit
Real Gross Fixed Capital Formation to GDP
in %
27,0
Forecast
25,0
23,0
21,0
19,0
17,0
15,0
1999
2001
EA18
2003
2005
2007
2009
Stressed Countries*
2011
2013
2015
USA
Source: EC, OECD. * EL, IE, PT, SI, IT, ES, CY.
www.oenb.at
oenb.info@oenb.at
29
9. To what extent is rising inequality contributing?
(within and between countries)
www.oenb.at
oenb.info@oenb.at
30
III. SOME EXOGENOUS RISKS
PRESENT ON TOP
www.oenb.at
oenb.info@oenb.at
31
Despite disappointing growth performance - risk balance
clearly tilted to the downside: Some important factors
• Fed-Tapering/exit more rapid than expected
•
•
•
•
But this would require faster US recovery
Rise in longer-term interest rates
Reversal in risk premium compression
If EM now better prepared, euro area periphery more effected?
• Emerging Markets slow down more widespread
• Fragile Five, China, Asia & Latin America
• Partly depending on US performance
• Ukraine - Russia Crisis: Increasing uncertainty - lower
foreign demand
• Higher oil prices (Middle East geopolitics)
www.oenb.at
oenb.info@oenb.at
32
III. SPECIAL FOCUS: IMPACT OF
SANCTIONS ON EUROPEAN
ECONOMIES
www.oenb.at
oenb.info@oenb.at
33
Russian value added more important for EU demand than
direct imports suggest – but even more for Russia
www.oenb.at
oenb.info@oenb.at
34
Gas-Stop Channel: heterogeneous gas dependency
www.oenb.at
oenb.info@oenb.at
35
Strong downward revision of GDP forecasts for Russia and
Ukraine
Russia: Development of GDP Growth Forecasts for 2014 over T ime
U kraine: Development of GDP Growth Forecasts for 2014 over T ime
EC
IMF
Consensus
BMPE / MPE
wiiw
WB
EBRD
IMF
Source: EC, IMF, EBRD, Consensus Economics, ECB, wiiw, WB.
Consensus
wiiw
WB
Jul.14
Jun.14
Mai.14
Apr.14
Mär.14
Feb.14
Jän.14
Dez.13
Nov.13
Okt.13
Sep.13
Jul.14
Jun.14
Mai.14
Apr.14
Mär.14
Feb.14
Jän.14
Dez.13
Nov.13
Okt.13
Sep.13
Aug.13
Jul.13
Jun.13
Mai.13
Apr.13
Mär.13
Feb.13
Jän.13
-1,0
Aug.13
0,0
Jul.13
1,0
Jun.13
2,0
Mai.13
3,0
Apr.13
4,0
Mär.13
5,0
Real GDP growth in %
6,0
5,0
4,0
3,0
2,0
1,0
0,0
-1,0
-2,0
-3,0
-4,0
-5,0
-6,0
Feb.13
6,0
Jän.13
Real GDP growth in %
EBRD
Source: IMF, EBRD, Consensus Economics, wiiw, WB.
Russia: Development of GDP growth forecasts for 2015 over time
U kraine: Development of GDP Growth Forecasts for 2015 over T ime
Real GDP growth in %
Consensus
www.oenb.at
BMPE / MPE
wiiw
WB
EBRD
IMF
Consensus
wiiw
WB
Jul.14
Jun.14
Mai.14
Apr.14
Mär.14
IMF
Feb.14
EC
Source: EC, IMF, EBRD, Consensus Economics, ECB, wiiw, WB.
Jän.14
-1,0
Nov.13
-1,0
Okt.13
0,0
Jul.14
0,0
Jun.14
1,0
Mai.14
1,0
Apr.14
2,0
Mär.14
2,0
Feb.14
3,0
Jän.14
3,0
Dez.13
4,0
Nov.13
5,0
4,0
Okt.13
5,0
Dez.13
Real GDP growth in %
6,0
6,0
EBRD
Source: IMF, EBRD, Consensus Economics, wiiw, WB.
oenb.info@oenb.at
36
Possible macroeconomic impact on the euro area
Response of real output to different shocks after 3 years
Shock
Russia
Ukraine
Euro area
U.S.A.
A: -1% of Russian real output
-1.29
-1.45
-0.15
-0.07
B: +20% increase in the oil price
1.23
0.13
-0.26
-0.18
... And a worst case scenario (over 3 years)
•
•
Increase of energy prices,
stop of gas supply
www.oenb.at
Euro-Area
-2.3%
Germany
-3.6%
Austria
-4.3%
oenb.info@oenb.at
37
Why don‘t energy prices react on geopolitical crises (yet)?
www.oenb.at
oenb.info@oenb.at
38
IV. ANY CONCLUSIONS?
www.oenb.at
oenb.info@oenb.at
39
www.oenb.at
Political Union
Economic Union
Fiscal Union
Banking Union
GEMU
Diagnosis:
1. Slow growth & low inflation
(risk of secular stagnation?)
2. Risks to the downside
dominate (geopolitics)
3. Euro area growth crisis
temporary or permanent?
Elements of therapy:
1. Investment is key
2. Completion of “Genuine
EMU” an important
contribution at least
oenb.info@oenb.at
40
SSM (plus CA) allows for consistent supervision –
Challenges
and intensifies coordination needs
Different regimes challenge
supervisory coordination
SSM
EBA
Non-EU
Euro area:
• SSM requires strong
coordination among ECB
and national competent
authorities (NCAs)
• SRM only applicable to SSM
banks
Non-euro area EU:
• Some countries may opt
into SSM
• All others continue to report
to the European Banking
Authority
Non-EU:
• Partial MoUs with NCAs but
heterogeneous regulations
www.oenb.at
oenb.info@oenb.at
41
Euro area output will reach pre-crisis level in 2015 –
unemployment rates stay above pre-crisis levels
www.oenb.at
oenb.info@oenb.at
42
The European Economy in 2015:
Prospects and Policy Challenges against
a Global Background
Peter Mooslechner
Oesterreichische Nationalbank
Executive Director
90. Kieler Konjunkturgespräche
Berlin, September 15, 2014
www.oenb.at
oenb.info@oenb.at
4343