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The European Central Bank has left its key interest rates unchanged.
The rate on main refinancing operations has stood at 2% since early
June 2003. Ten-year government bond yields, however, did turn up again
after their all-time low of 4.02% in March, averaging 4.39% in May. The
yield spread thus widened.
The stock markets, which had recovered until February 2004, have
moved sidewards since then. The broad Euro STOXX index lost a bit
more in May than the Dow Jones Industrial and the German DAX.
The annual rate of growth of the broad monetary aggregate M3 continued its downward trend, reflecting an ongoing normalisation of portfolio
behaviour of money holders, involving a cautious shift towards long-term
financial assets. The annual rate of growth of M3 declined to 5.6% in
April, pushing the three-month moving average down to 6.1% for the
period February – April 2004 from 6.4% in the period January – March
The monetary conditions index continued the upward trend established
at the beginning of the year, indicating further monetary easing. A slight
decline of real interest rates and a rise in the real effective exchange rate
of the euro caused this development.
CESifo Forum 2/2004
Euro-zone and EU25 real GDP both grew by 0.6% in the first quarter of
2004, compared to the previous quarter, according to first estimates of
Eurostat. Compared to the first quarter of 2003, GDP grew by 1.3% in the
euro-zone and by 1.6% in the EU25, after 0.7% and 1.1% respectively in
the previous quarter. Private consumption and exports accelerated, whereas investment and imports slowed down.
The economic sentiment indicator for the EU rose by 1.2 points in May,
reaching a level of 103.3. This improvement reflects primarily mounting
confidence in the industry and services sector, which more than offset a
slight dip in consumer sentiment. Economic sentiment improved strongly in the Czech Republic, Estonia, Latvia, Luxembourg, the Netherlands,
Portugal, Sweden and the UK, while it dropped noticeably in Denmark,
Greece, Ireland, Lithuania, Hungary and the Slovak Republic.
* 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).
** New consumer confidence indicators, calculated as an arithmetic average of the
following questions: financial and general economic situation (over the next
12 months), unemployment expectations (over the next 12 months) and savings (over
the next 12 months). Seasonally adjusted data.
The assessment of order books had improved noticeably in April and
remained unchanged in May (as did production expectations). Capacity
utilisation increased marginally in the second quarter, from 80.5 to
Industrial confidence in the EU continued its upward trend that had started in mid-2003, increasing by 1 point to a level of – 3. Behind the increase
was a strong improvement in the assessment of stocks of finished goods.
Luxembourg and the UK showed double-digit increases, whereas
Hungary saw the most pronounced fall.
Consumer confidence for the EU dipped slightly to – 13 after having
remained unchanged at – 12 in the previous three months. Large improvements in consumer confidence were recorded in the Czech Republic,
Hungary and Poland, whereas Estonia experienced a big drop.
CESifo Forum 2/2004
The economic climate indicator for the euro area fell slightly in April
after having risen five times in succession. Both, the assessments of the
current situation and the outlook for the next six months contributed to
the worsening. Nevertheless, the experts surveyed expect the economy of
the euro area to grow by 1.7% in 2004 after a mere 0.4% in 2003.
The euro was subject to relatively wide oscillations against the US dollar in May and early June. The euro initially appreciated against the dollar before depreciating rather sharply in the second week of May. In the
second half of May and early June, however, following US data releases
showing a further widening of the current account deficit in March, the
euro more than regained its earlier losses. On 22 June it stood at $1.22.
Euro-zone seasonally adjusted unemployment stood at 9% in April 2004,
unchanged compared to March. It was 8.9% in April 2003. In April 2004,
the lowest rates were registered in Luxembourg (4.2%), Ireland and
Austria (4.5%) and the Netherlands (4.7% in March). The unemployment
rate was highest in Spain (11.2%), followed by Germany (9.8%), France
(9.4%) and Italy (8.5% in January).
The Harmonised Index of Consumer Prices continued to rise in May
2004, to 2.5% from 2% in April. The continued rise in energy prices
(prices of processed food remaining roughly stable) meant that core
inflation rose only modestly from April to May.
CESifo Forum 2/2004