1 Wolfgang Modery Directorate Monetary Policy The ECB’s monetary policy at times of crisis Visit...
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Transcript of 1 Wolfgang Modery Directorate Monetary Policy The ECB’s monetary policy at times of crisis Visit...
1
Wolfgang ModeryDirectorate Monetary Policy
The ECB’s monetary policy The ECB’s monetary policy at times of crisis at times of crisis
Visit of Representatives of the Swedish Industry
Frankfurt am Main, 1 October 2009
2
• Turmoil started in 2007 in US as sub-prime crisis
• Intensification in autumn 2008 (Lehman
Brothers)
• Functioning of money market seriously
hampered
• Spill-over of financial stress to real economy
severe downward impact on economic growth
The unfolding of the crisis
3
World real GDP growth
Source: Eurostat.Latest observations: 2009 Q1.
-6.00%
-4.00%
-2.00%
0.00%
2.00%
4.00%
6.00%
8.00%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
-6.00%
-4.00%
-2.00%
0.00%
2.00%
4.00%
6.00%
8.00%quarter-on-quarter (RHS)
year-on-year (LHS)
4Source: Eurostat.Latest observations: 2009 Q2.
-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
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
-2.7
-2.4
-2.1
-1.8
-1.5
-1.2
-0.9
-0.6
-0.3
0.0
0.3
0.6
0.9
1.2
1.5quarter on quarter percentage changes (RHS)
annual percentage changes (LHS)
Euro area real GDP growth
5
Euro area real GDP growth: historical perspective
Source: Eurostat.Latest observation: 2009 Q2.
-6
-4
-2
0
2
4
6
8
1970 1974 1978 1982 1986 1990 1994 1998 2002 2006
-6
-4
-2
0
2
4
6
8
quarter-on-quarter (LSH) year-on-year (RHS)
6
Euro area industrial production: historical perspectiveExcluding construction production
Source: Eurostat.Latest observation: 2009 Q2.
-20
-15
-10
-5
0
5
10
15
20
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005
-20
-15
-10
-5
0
5
10
15
20
quarter-on-quarter (LHS) year-on-year (RHS)
7
Comparison of forecasts for euro area real GDP growth
(annual percentage changes)
Institution Date of release 2009 2010
ECB staff macroeconomic projections Sept. 2009 -4.4 - -3.8 -0.5 - 0.9
European Commission May 2009 -4.0 -0.1
IMF July 2009 -4.8 -0.3
OECD June 2009 -4.8 0.0
ECB Survey of Professional Forecasters 2009 Q3 -4.5 0.3
Consensus Economics August 2009 -4.3 0.6
Euro Zone Barometer August 2009 -4.3 0.7
GDP growth forecasts / projections
8
Eurosystem staff projections for euro area growth Real GDP growth between -4.4% and -3.8%
in 2009 and between -0.5% and 0.9% in 2010
Upwards revision of the range for both 2009 and 2010, reflecting the recent, more positive developments and information
GDP expected to continue to stabilise in second half of 2009, before gradually recovering during 2010
Projected improvement mainly supported by revival of exports and positive effects of fiscal impulse on domestic demand
9
Risks to the growth outlook
Risks are broadly balanced and result from Effects from the macroeconomic stimulus from various policy measures Confidence improvement Favourable developments in labour markets and foreign demand
On the other hand Stronger impact on the real economy from the turmoil in financial markets Increases in oil and other commodity prices Intensification of protectionist pressures Adverse developments in the world economy from disorderly correction of global imbalances
10
Inflation
Latest observation: August 2009. Sources: BIS, Eurostat and ECB calculations
HICP, (percentage change compared to the previous year)
-2
0
2
4
6
8
10
12
14
16
1970 1975 1980 1985 1990 1995 2000 2005
11
Source: Eurostat. Last observation: HICP August 2009.
(percentage points, annual percentage changes)
-1.5
-0.5
0.5
1.5
2.5
3.5
4.5
2004 2005 2006 2007 2008 2009
-1.5
-0.5
0.5
1.5
2.5
3.5
4.5
Contribution of food component to overall HICPContribution of energy component to overall HICPOverall HICPHICP excluding food and energy
HICP inflation and contributions from energy and foods
12
Background slides
-10.0
-8.0
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
2004 2005 2006 2007 2008 2009
-10.0
-8.0
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
Const ruct ionManufacturingMarket servicesT otal economy
-4.0
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
1999Q1 2001Q1 2003Q1 2005Q1 2007Q1 2009Q1
-4.0
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
Nominal unit labour costsReal unit labour costs (GDP deflated)Compensation per employeeLabour productivity
Employment growth by sector (annual growth rates)
Labour cost indicators (annual growth rates)
Current labour market developments
Source: Eurostat and ECB.
13
Euro area unemployment ratePercent of labour force
Latest observation: July 2009.Source: Eurostat.
6.5
7.0
7.5
8.0
8.5
9.0
9.5
10.0
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
unemployment rate
14
Sources: Reuters, Consensus Economics and ECB. 1 ECB’s Survey of Professional Forecasters Gathers expectations for euro area inflation, economic activity and unemployment from experts affiliated to financial or non-financial institutions based in the European Union. Latest observations: 20 August 2009.
Inflation expectations
(annual percentage change)
1.0
2.0
3.0
4.0
1.0
2.0
3.0
4.0
Inflation expectations 5 to 10 years ahead (Consensus Economics Forecasts)
HICP Inflation expectations, 5 years ahead (SPF)
15
Survey based and market inflation expectations in the euro areaPercent per annum
Source: Reuters, Consensus, and ECB calculations.Latest observation: 15 September 2009.
0.0
0.5
1.0
1.5
2.0
2.5
3.0
2004 2005 2006 2007 2008 2009
5-year BEIR (seas. adj.)5-year forward 5 years ahead BEIR (seas. adj.)1-year forward 4 years ahead BEIR (seas. adj.)6 to 10 years ahead Consensus inflation forecastLong term inflation expectations from SPF
16
Comparison of forecasts for euro area consumer price inflation
(annual percentage changes)
Institution Date of release 2009 2010
ECB staff macroeconomic projections Sept. 2009 0.2 - 0.6 0.8 - 1.6
European Commission May 2009 0.4 1.2
IMF July 2009 0.3 0.6
OECD June 2009 0.5 0.7
ECB Survey of Professional Forecasters 2009 Q3 0.4 1.1
Consensus Economics August 2009 0.3 1.2
Euro Zone Barometer August 2009 0.3 1.1
HICP forecasts
17
Eurosystem staff projections for euro area inflation
Price and cost expected to remain dampened in the wake of ongoing sluggish demand in the euro area and elsewhere
Annual HICP inflation projected between 0.2% and 0.6% in 2009 and between 0.8% and 1.6% in 2010
Slight upward revision for both 2009 and 2010 compared with the June 2009 ECB staff projections, reflecting mainly upward revisions to energy prices
18
Risks to the inflation outlook
~ Outlook for economic activity
Higher than expected commodity prices Stronger than currently expected
increases in indirect taxation and administered prices due to the need for fiscal consolidation in the coming years
19
Since the intensification of the financial crisis in autumn of 2008
… and against the background of rapidly receding inflationary pressures …
… the ECB has taken a series of monetary policy and liquidity management measures …
… unprecedented in nature, scope and timing
Unprecedented response by the ECB to the crisis
20
ECB response: strong decline in ECB interest rates Percentages per annum; daily data
Source: ECBLast observations: 16 September 2009
0.0
1.0
2.0
3.0
4.0
5.0
6.0
Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09
EONIA
main refinancing rate
deposit rate
marginal lending rate
21
ECB response to the crisis – enhanced credit support
Primarily bank-based measures to enhance
the flow of credit beyond the standard
interest rate channel
- Fixed-rate full allotment
- Expansion of collateral
- Longer-term liquidity provision
- Liquidity provision in foreign currencies
- Financial market support through purchases of
covered bonds
22
Note: Breakdown of the sources of external financing of non-financial corporations, in percent, average 2004 – 2008
Source: ECB Monthly Bulletin, April 2009
0
20
40
60
80
100
Euro Area United States
0
20
40
60
80
100
Banks
Non-Bank
Non-Bank
Banks
Different role played by banks in funding firms in the euro area and the US
23
Breakdown of the financing of non-financial businesses in the US (4-quarter moving sum of transactions, in USD bn)
Breakdown of the financing of non-financial corporations in the euro area (4-quarter moving sum of transactions, in EUR bn)
-1000
-500
0
500
1000
1500
2000
2500
3000
2000 2002 2004 2006 2008
-1000
-500
0
500
1000
1500
2000
2500
3000
bank loansloans from private ABS issuerstrade creditdebt securitiesshares and other equity other financingtotal financing
-400
-200
0
200
400
600
800
1000
2000 2002 2004 2006 2008
-400
-200
0
200
400
600
800
1000
MFI loansOFI loansother f inancingdebt securitiesshares and other equity (netted)total f inancing
Sources: Board of Governors of the Federal Reserve System and ECBLast observations: 2009 Q1
Different financial structures in euro area and the US
24
The Eurosystem’s balance sheetIn millions, euro
Source: ECBLast observations: End-of-August 2009
600
800
1,000
1,200
1,400
1,600
1,800
Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09
Start of financial turmoil
25
Loans to the private sectorAnnual percentage changes; adjusted for seasonal and calendar effects
Source: ECB calculations.Latest observations: July 2009
-1
2
5
8
11
14
2004 2005 2006 2007 2008 2009
-1
2
5
8
11
14
non-financial corporations
households
26
MFI interest ratesAnnual percentage points
Short-term Long-term
Sources: ECB and Reuters.Latest observations: MFI interest rates: July 2009; money market rates: 9 September 2009 (average of daily data).
2
3
4
5
6
2003 2004 2005 2006 2007 2008 2009
2
3
4
5
6
loans for house purchase (over 5 and up to 10 years)loans for house purchase (over 10 years)small loans to non-financial corporations (over 5 years)large loans to non-financial corporations (over 1 and up to 5 years)large loans to non-financial corporations (over 5 years)
0
1
2
3
4
5
6
7
8
9
10
2003 2004 2005 2006 2007 2008 2009
0
1
2
3
4
5
6
7
8
9
10
consumer creditloans for house purchasesmall loans to non-financial corporationslarge loans to non-financial corporations3-months Euribor
27
Spread between 12-Month EURIBOR/LIBOR and EONIA/OIS*
(percent p.a.)
12-Month EURIBOR/LIBOR(percent p.a.)
Sources: ECB, Bloomberg.Latest observations: 7 September 2009. * OIS: Overnight Index Swap rates
Money market rates and spreads compared with those in other major currencies
◄ 1.20◄ 1.28◄ 1.29
0
1
2
3
4
5
6
7
Jul-07 Dec-07 May-08 Oct-08 Mar-09 Aug-09
GBP LIBOR 12M
EURIBOR 12M
USD LIBOR 12M
◄ 0.89
◄ 0.59◄ 0.68
0
0.5
1
1.5
2
2.5
3
3.5
4
Jul-07 Dec-07 May-08 Oct-08 Mar-09 Aug-09
GBP SPREAD 12MEUR SPREAD 12MUSD SPREAD 12M
28
Lessons to be drawn? (1)
Make financial markets more effective by
• Stricter regulation of all financial market participants and
products
• More adequate capital requirements and accounting
rules
• Stronger international cooperation in financial oversight
• Appropriate time horizon for macro-economic policies
• Adjustment of banking models and remuneration
systems
• Global management of global risks ?
29
Lessons to be drawn? (II)
Moreover
• Strengthen incentives that improve disciplining
forces of competition
• Discourage “short-termism” and strengthen concept
of liability and responsibility
• The value added by having a monetary union was
particularly
proved helpful at times of financial distress