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Trends
MONETARY CONDITIONS
IN THE EURO AREA
Source: European Central Bank.
3-month interest rates in the euro-zone continued their rise in June. The
Governing Council of the European Central Bank had decided, on 8 June, to
raise the interest rate on the Eurosystem`s main refinancing operations from
3.75% to 4.25%. The interest rates on the deposit and marginal lending facilities were raised to 3.25% and 5.25% respectively. At 6.3%, the
3-month average of the annual growth rates of M3 (February to April) moved
further away from the reference value of 41/2%. Liquidity in the euro area
continued to be very generous.
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Trends
EU SURVEY RESULTS
Growth of real gross domestic product continued to accelerate,
reaching 3.2% year-over-year in the first quarter 2000 both for
the euro-zone and for EU-15. In the euro-zone, in particular, the
small countries have consistently outperformed the larger
economies. From the first quarter 1995 to the fourth quarter 1999
GDP in the six small countries increased by 10.9% compared to
the GDP of the other five which grew by 7.3%. This difference is
also reflected in labour market performance.
* The industrial confidence indicator is an average of responses (balances) to the
questions on production expectations, order-books and stocks (the latter with
inverted sign).
** The consumer confidence indicator is an average of responses to the questions
on the financial situation of households and their assessment of the general economic conditions, both in the past and future twelve months, and the question on
big-ticket purchases.
a)
The indicator of economic sentiment is a weighted average of the industrial confidence indicator, the construction confidence indicator, the consumer confidence
indicator and the share-price index. 1985 = 100.
Despite the improvement of the industry confidence indicator
(and the construction confidence indicator which is also included along with the share price index), the economic sentiment
indicator for the EU showed a slight decrease in June because of
the decline in consumer confidence.
The assessment of order books in terms of balances moved into
the positive range in the past few months. In line with expected
orders, capacity utilisation rose above 83%. This is quite an
improvement over late 1999.
The EU industry confidence indicator rose one point in the EU
and three points in the euro-zone. The main contributors were
Italy, Germany and France, in that order.
Consumers, however, were not so optimistic in June as in the previous month. A decline of one point was found in the EU whereas there was a two-point fall in the euro-area. Portugal, Greece
and Germany were the main sources of this slight correction
from a very high level of consumer confidence.
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CESifo Forum
Trends
EU INDICATORS
The general fiscal balances in the euro area have steadily
declined from a deficit of 5.5% of GDP in 1993 to an estimated
deficit of 1% of GDP in 2000. Over the same period, the structural deficit fell from 4.4% of potential GDP to an estimated
0.9%. Consolidation is thus showing concrete results.
a)
BIS calculations; to December 1998, based on weighted averages of the euro area
countries’ effective exchange rates; from January 1999, based on weighted averages
of bilateral euro exchange rates. Weights are based on 1990 manufactured goods
trade with the trading partners United States, Japan, Switzerland, United
Kingdom, Sweden, Denmark, Greece, Norway, Canada, Australia, Hong Kong,
South Korea and Singapore and capture third market effects. Real rates are calculated using national CPIs. Where CPI data are not yet available, estimates are used.
The real effective exchange rate of the euro, which had declined
continuously since even before the introduction of the common
currency, rebounded in June. The nominal USD/EUR rate rose
from its low of an average 91 U.S. cents in May to 95 U.S. cents
in June.
In Europe, the unemployment rate continued on its downward
trend, levelling off in May, at 8.5%, in EU-15. A year earlier it had
still stood at 9.2%. In the euro-zone, unemployment declined
more, though from a higher level, from 10.0% to 9.2% during the
same one-year period. The pick-up in economic growth is at last
having a positive effect on the labour market.
CESifo Forum
In the euro-zone, the harmonised index of consumer prices rose
steeply in the second half of 1999, peaking at 2.1% in March
2000, but receding to 1.9% in April and May. The rise was due to
surging energy prices as the oil price (Brent dated) went from
$15.90 p/b in June 1999 to $27.15 in March 2000. During the same
period, core inflation, i.e. minus food and energy, was stable, fluctuating around 1%. In April, however, core inflation increased to
1.2%, only to recede again in May, as food and energy prices
accelerated again.
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