Download European Monetary and Financial Outlook. 26th Annual Hyman P

Peter Praet
Member of the Executive Board of the ECB
European Monetary and
Financial Outlook
26th Annual Hyman P. Minsky
Conference on the State of the US
and World Economies
19 April 2017
Rubric
6-10
years ahead euro area growth expectations
Real GDP growth
(percentage per annum)
2.25
2.25
2.00
2.00
1.75
1.75
1.50
1.50
1.25
1.25
1.00
2003
1.00
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Source: Consensus Economics.
Latest observation: October 2016.
.
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Rubric
Declining
expectations of long-term growth
Potential euro area output reduction due to crisis
(index 1999 = 100)
Potential GDP
Actual GDP
Counterfactual Potential GDP
140
140
130
130
120
120
110
110
100
1999
100
2001
2003
2005
2007
2009
2011
2013
2015
Sources: European Commission.
Note: The counterfactual potential GDP path assumes that potential GDP continued to grow at its 2007 growth rate.
Latest observation: 2016.
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Rubric
Conditions
for a balance sheet recession
Real GDP and pre-crisis expected path
Bank loans to private sector
(index 2007 = 100)
(annual percentage change)
EA
DE
ES
EA
130
DE
ES
30
130
Actual growth
vvv
25
Expected growth path in 2007
120
20
120
15
110
10
110
5
100
0
100
-5
90
2006
-10
2003
90
2008
2010
2012
2014
2016
2005
2007
2009
2011
2013
2015
2017
Source: ECB.
Latest observation: February 2017.
Source: ECB, Consensus Economics, ECB calculations
Note: Dotted lines represent evolution of GDP based on private sector expectations in
October 2007.
Latest observation: 2016.
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Recent
Rubric developments and short-term outlook
Euro area real GDP growth, composite PMI and ESI
(q-o-q % change, index and percentage balance)
Real GDP (rhs)
ESI
Composite PMI
March MPE 2017 (rhs)
70
2
60
1
50
0
40
-1
30
-2
20
2008
-3
2009
2010
2011
2012
2013
2014
2015
2016
2017
Source: Markit, DG-ECFIN, Eurostat, ECB and MPE.
Note: ESI is rescaled using the PMI standard deviation.
Latest observations: 2016Q4 (GDP), February 2017 (ESI and PMI), 2017Q4 (March MPE 2017).
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Rubric
Sovereign
bond yields
Dispersion of euro area sovereign bond yields
(percentage per annum)
2-year maturity
Min-max range
Average euro area
Spain
Portugal
25
10-year maturity
Interquartile range
Ireland
Italy
25
25
20
20
15
15
10
10
5
5
0
0
-5
2007
2009
2011
2013
2015
Interquartile range
Ireland
Italy
25
20
20
15
15
10
10
5
5
0
0
-5
2007
-5
Min-max range
Average euro area
Spain
Portugal
-5
2009
2011
2013
2015
2017
Sources: Thomson Reuters and ECB calculations.
Note: The data used is based on euro area country composition as in 2011. The yields for Greece, Cyprus, Estonia, Luxembourg, Malta and Slovenia are excluded owing to
infrequent or a lack of observations.
Latest observation: 3 March 2017.
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Rubric finances
Public
Euro area government debt and deficit
(% of GDP)
100
100
2014
2015
2012
2013
2016
90
90
Debt ratio
2010
2011
80
80
2009
70
2004
2005 2008
2000
2006
2003
2002
70
2001
2007
60
60
-7
-6
-5
-4
-3
Budget balance
-2
-1
0
Source: European Commission’s winter 2017 economic forecast.
Latest observation: 2016.
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Rubric
Price
of inflation and deflation protection
Price of inflation and deflation protection
(basis points)
Price of inflation protection
Price of deflation protection
400
400
300
300
200
200
100
100
0
2008
0
2009
2010
2011
2012
2013
2014
2015
2016
2017
Sources: Bloomberg.
Latest observation: 12 April 2017.
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The
ECB response
Rubric
Post-Lehmann phase: Elastic provision of long-term liquidity to banks under full allotment
LTROs
•
Placed ceiling on money market rates, safeguarded access to funding for banks in liquidity deficits
•
Large endogenous expansion of balance sheet contained fragmentation, restored confidence.
But: expansion of Eurosystem balance sheet was only temporary and non-discretionary …
… so that measures lost traction as banks started actively contracting their exposures and
reimbursing ECB loans, leading to a contraction of money
Debt crisis: Targeted interventions in securities markets (SMP) and conditional commitment
to stamp out break-up risk compensation from bonds of stressed jurisdictions (OMT)
•
OMT acted as potent circuit breaker and restored financial stability
SMP and
OMT
But: confidence crisis had undermined banks’ willingness and capacity to keep credit flowing in vast
portion of the euro area
… and tightening borrowing conditions amplified renewed slump, jeopardizing macroeconomic and
price stability
Transmission and deflation risks:
TLTROs,
neg. DFR,
APP
•
TLTROs give banks incentives to increase loan supply and reduce borrowing costs for the
real economy
•
Asset purchases compress term spreads on securities encouraging portfolio rebalancing
towards assets with a higher risk-adjusted return
•
Negative DFR discourages liquidity hoarding and speeds up asset reallocation
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Rubric of VLTROs and OMT in Spain
Impact
Banks’ vs. sovereign CDS premia
(basis points)
900
2010Q1
2011Q4
800
2011Q4
800
2012Q1
700
700
600
600
Bank CDS
Bank CDS
Deterioration
in banking
sector
900
500
400
500
400
300
300
200
200
100
100
0
0
0
100
200
300
400
500
600
700
800
900
0
100
200
Sovereign CDS
300
400
500
600
700
800
900
Sovereign CDS
900
900
Summer 2012
intensification
of crisis
2012Q1
800
2012Q2
800
2012Q2
2013Q1
700
700
600
600
Bank CDS
Bank CDS
Impact of
VLTROs
500
400
500
400
300
300
200
200
100
100
0
2016Q4
Impact of OMT
announcement
and current
levels
0
0
100
200
300
400
500
600
700
800
0
900
200
300
400
500
600
700
800
900
Sovereign CDS
Sovereign CDS
Source: Thomson Reuters, ECB calculations.
Notes: Charts show daily observations during a given quarter.
Last observation: 30 December 2016.
100
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Rubric of VLTROs and OMT in Italy
Impact
Banks’ vs. sovereign CDS premia
(basis points)
700
700
600
2012Q1
500
Bank CDS
500
400
300
400
300
200
200
100
100
0
0
0
100
200
300
400
500
600
0
700
100
200
Sovereign CDS
300
400
500
600
700
Sovereign CDS
700
Summer 2012
intensification
of crisis
700
2012Q1
600
2012Q2
600
2012Q2
500
2013Q1
2016Q4
500
Bank CDS
Bank CDS
Impact of
VLTROs
2011Q4
2010Q1
2011Q4
600
Bank CDS
Deterioration
in banking
sector
400
300
400
300
200
200
100
100
0
Impact of OMT
announcement
and current
levels
0
0
100
200
300
400
500
600
700
0
Sovereign CDS
Source: Thomson Reuters, ECB calculations.
Notes: Charts show daily observations during a given quarter.
Last observation: 30 December 2016.
100
200
300
400
500
600
700
Sovereign CDS
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Rubric
Euro
area and US forward rates
1y OIS forward rates
Forward interest rates: 1-year 1 year ahead
(percentage per annum)
(percentage per annum)
EA 22-May-13
US 22-May-13
EA 12-Apr-17
US 12-Apr-17
3
EA
3
2
US
2.0
2.0
1.5
1.5
1.0
1.0
0.5
0.5
0.0
0.0
2
1
1
0
0
-0.5
-1
-1.0
2013
-1
1y1y
1y2y
1y3y
-0.5
1y4y
Source: ECB calculations.
Latest observation: 12 April 2017.
-1.0
2014
2015
2016
2017
Source: ECB.
Notes: The forward rates correspond to the OIS rate of the euro area and the US
respectively.
Latest observation: 12 April 2017.
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Central
Rubric bank balance sheets
Central bank balance sheets
(Monetary policy instruments as percent of GDP)
CEPR Recessions
Credit easing measures
Eurosystem
Federal Reserve
30
25
20
15
10
5
0
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Source: ECB, Federal Reserve.
Latest observation: 14 April 2017.
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Inflation
Rubric developments
HICP and HICP excluding food and energy
(annual percentage changes)
HICP
HICP excl. food and energy
5
5.0
4
4.0
3
3.0
2
2.0
1
1.0
1.5
0.7
0
-1
2007
0.0
-1.0
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Source: Eurostat.
Last observation: March 2017.
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Rubric
Financial
sector agenda: Restoring resilience
Regulatory initiatives towards a European banking union
SSM Regulation
BRRD
SRM Regulation
• Establishes SSM
• Supervision of all
banks in participating
Member States by
ECB and NCAs
• Framework for
resolution of credit
institutions and
investment firms
• Harmonised tools and
powers relating to
prevention, early
intervention and
resolution for all EU
Member States
• Establishes single
system for efficient
and harmonised
resolution of banks
within the SSM
• Single Resolution
Board (SRB) and
Single Resolution
Fund (SRF)
• In force since 3 Nov
2013
• SSM operational
since 4 Nov 2014
• In force since 2 Jul
2014
• Applies to MS since 1
Jan 2015
• Bail-in provisions
applicable as of 1 Jan
2016
• In force since 19 Aug
2014
• SRF applicable as of
1 Jan 2016
Source: ECB, Annual Report 2014.
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