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In anticipation of a rise in ECB key interest rates in June, money market rates continued to rise between March and May 2006. In May, the
3-month EURIBOR averaged 2.89%. Effective June 15th, the ECB
raised its key rates by another 25 basis points.
Since the increase of interest rates at the long end was less pronounced
than that at the short end, the yield spread narrowed compared to April.
Ten-year bond yields averaged 4.06% in May 2006. The yield spread
thus amounted to 1.17 points.
The German stock index DAX peaked in April, averaging 6,009 points,
but declined in May. The Euro STOXX rose in parallel, averaging 3,841
in April and 3,727 in May. Compared to the performance of these two
European indices, the Dow Jones Industrial continued to rise in May,
averaging 11,334 points.
The first four months of 2006 saw a renewed strengthening of monetary
growth which more than reversed the moderation observed in the fourth
quarter of 2005. Annual M3 growth in the first quarter of 2006 amounted
to 7.9%. It had risen to 8.5% in March and further to 8.8% in April, a
level that was last recorded in mid-2003. The three-month moving average of the annual M3 growth rates over the period from February to
April 2006 stood at 8.4%, compared with 8.1% in the previous threemonth period.
In April, the monetary conditions index has continued its decline that
had started in late 2005, signalling greater monetary tightening. This is
the result of rising real short-term interest rates and a rising real effective exchange rate of the euro.
CESifo Forum 2/2006
EU25 real GDP grew by 0.7% in the first quarter of 2006 and euro area
real GDP by 0.6%, compared to the previous quarter. In the fourth quarter of 2005, growth rates had been 0.4% in the EU25 and 0.3% in the euro
Compared to the first quarter of 2005, GDP rose by 2.2% in the EU25
and by 1.9% in the euro area, after 1.9% and 1.7% respectively in the previous quarter.
The upward movement of the EU Economic Sentiment Indicator, which
had begun in the summer of 2005, slowed down to 0.1 of a point in May,
while sentiment in the euro area increased by 1.0 point. Germany and
Spain recorded a substantial improvement of 1.4 and 1.7 points respectively.
* 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 unchanged industrial confidence indicator was the combined result of
improved production expectations and a slightly more negative assessment of order books. Capacity utilisation rose to 82.1% in the second
quarter of 2006 from 81.9 in the first quarter.
The EU industrial confidence indicator remained unchanged in May
after a substantial improvement in April. The biggest improvement was
registered by Spain (4 points). It remained unchanged in Germany,
France and Italy, and fell in the UK (3 points). The EU consumer confidence indicator rose by yet another point in May. At the country level, developments were mixed. While consumers in Germany and Italy reported an increase in confidence of 3 points, and in France by 2 points, consumers in the other large EU countries have become less confident.
CESifo Forum 2/2006
The Ifo indicator for the economic climate of the euro area rose in the
second quarter of 2006, achieving a five-year high at 103.4 points. For the
first time since 2001, the present economic situation was assessed as “satisfactory”. The outlook for the coming six months remained clearly optimistic in all countries. The economic recovery in the euro area has further solidified.
The exchange rate of the euro against the US dollar, which had peaked
at 1.34 $/€ in December 2004, averaged 1.28 $/€ in May 2006, a clear
recovery over the preceding 11 months.
Euro-area unemployment (seasonally adjusted) remained unchanged
compared to the previous month at 8.0% in April. The year earlier rate
had been 8.7%. EU25 unemployment stood at 8.3% in April 2006, unchanged compared to March, but 0.6 points lower than a year earlier.
The lowest rates were registered in the Netherlands (3.8%), Denmark
(4.34% in March), Ireland (4.3%), Luxembourg (4.8%) and Austria
(4.9%). Unemployment rates were highest, but declining throughout, in
Poland (16.5%), Slovakia (15.5%), Greece (9.6%), France (8.9%), and
Malta (8.5%).
Euro area annual inflation (HICP) was 2.5% in May 2006, up from 2.4%
in April. A year earlier the rate had been 2.0%. The lowest annual rates
were observed in Poland (1.5%), Finland (1.7%), the Netherlands
(1.8%) and Sweden (1.9%), and the highest rates in Latvia (7.1%), Slovakia (4.8%), Estonia (4.6%) and Spain (4.1%). Year-on-year core inflation (excluding energy and unprocessed foods), fell to 1.5% in May 2006
from 1.6% in April.
CESifo Forum 2/2006