The current economic environment Prof. Dr. Andreas Dombret Member of the Board Deutsche Bundesbank – June 11, 2010 –
Jan 06, 2016
The current economic environment
Prof. Dr. Andreas Dombret
Member of the Board Deutsche Bundesbank
– June 11, 2010 –
June 11, 2010 TMA Europe Conference 2
❙Economic recovery stronger than expected.❙Upward revisions of GDP forecasts.
❙Pace of recovery uneven both globally and within Eurozone.❙Strong in EMEs, the US and Japan; more subdued in the euro area.❙Recovery in Germany intact, with strong impulses from exports.
❙Rising sovereign debt as major downside risk.❙Uncertainty on financial markets due to Greek debt crisis.❙Consolidation: major task of economic policy.
The world economy in June 2010 – where do we stand?
June 11, 2010 TMA Europe Conference 3
❙Upward trend of important global leading indicators continues.
❙Signals proceeding robust recovery of world economy:
❙Global PMI consistent with strong expansion in manufacturing as well as in other sectors.
❙German ifo world economic climate index on the rise; index component of expectations at comparably high level in recent months.
❙OECD composite leading indicator signaling expansion for world economy since November 2009.
Good news: Upward trend in global leading indicators
June 11, 2010 TMA Europe Conference 4
❙OECD: global output
+4.6% in 2010.
❙Forecasts revised
upward;
in particular for
OECD members
(from 1.9% to 2.7%).
❙World trade
strengthened;
trade growth robust.
Good news: Upward revisions for global growth and trade projections
Growth in: 2009 2010 Diff. from Nov.
2011 Diff. from Nov.
Real GDP
OECD -3.3 +2.7 +0,8PP +2.8 +0,3PP
World -0,9 +4,6 +1,2PP +4,5 +0,8PP
World trade -11,0 +10,6 +4,6PP +8,4 +0,7PP
Forecasts from OECD Economic Outlook May 2010
June 11, 2010 TMA Europe Conference 5
❙Global economy now back
on growth track.
❙Performed better than
anticipated.
❙Recovery expected to
continue…
❙… after most severe
recession since WW II in
2009.
Good news: Robust Recovery
GDP growth
(calendar adjusted)2009 2010 2011
USA -2.4 +3.2 +3.2
Japan -5.2 +3.0 +2.0
UK -4.9 +1.3 +2.5
Euro area -4.1 +1.2 +1.8
Germany -4.9 +1.9 +2.1
China +8.7 +11.1 +9.7
OECD -3.3 +2.7 +2.8
Forecasts from OECD Economic Outlook May 2010
June 11, 2010 TMA Europe Conference 6
❙Output expanding at
varying speeds:❙Growth strong and close to
pre-crisis levels in some
EMEs in South and East
Asia and Latin America; …
❙… recovery in some OECD
member much weaker.
❙US on the verge of self-
sustaining recovery; growth
in Europe more subdued.
Bad news: Recovery uneven across and within regions
GDP growth
(calendar adjusted)2009 2010 2011
USA -2.4 +3.2 +3.2
Japan -5.2 +3.0 +2.0
UK -4.9 +1.3 +2.5
Euro area -4.1 +1.2 +1.8
Germany -4.9 +1.9 +2.1
China +8.7 +11.1 +9.7
OECD -3.3 +2.7 +2.8
Forecasts from OECD Economic Outlook May 2010
June 11, 2010 TMA Europe Conference 7
❙Since mid-2009 strong pick-up in real
GDP.
❙Temporary impulses from fiscal
stimulus and slower pace of inventory
decumulation.
❙Strengthening in private final demand
(consumption as well as spending on
equipment and software) points to
self-sustaining recovery.
❙Continued decline in private non-
residential construction; recovery in
housing fragile.
USA: On the verge of self-sustaining recovery
June 11, 2010 TMA Europe Conference 8
❙Noticeable stabilization of house prices
in 2009. However, also due to …
❙… Fed interventions on the mortgage
market …
❙… as well as fiscal incentives to buy
homes.
❙FHFA Purchase-Only Index declined in
2010Q1 by 3.2% yoy. S&P Case-Shiller
Index up by 2.0% yoy.
USA: Housing market tentatively stabilizing
US house price indicesYear-on-year change
-25
-20
-15
-10
-5
0
5
10
15
20
2001Q1 2003Q1 2005Q1 2007Q1 2009Q1
%
S&P Case-Shiller Index(national)
FHFA Purchase-Only Index
June 11, 2010 TMA Europe Conference 9
❙GDP expanded strongly in winter
2010, for fourth consecutive quarter.
❙Recovery mainly driven by
substantial growth in exports; high
demand particularly from Asian
emerging countries.
❙Domestic demand rebounded
recently as well; ongoing fiscal
stimulus measures and recovery in
trade feeding into profits and wages.
❙However, public finances
increasingly strained, with gross debt
forecasted to exceed 200% of GDP.
Japan: Recovery on its way
June 11, 2010 TMA Europe Conference 10
❙ In Q1 only slight increase in GDP.
❙Growth mainly driven by inventories.
❙ Noticeable rise of GDP in Italy (+0.5%);
much smaller increases in Germany
(+0.2%), France and Spain (both +0.1%).
❙ New forecast of the Eurosystem (published
yesterday):
❙GDP growth (average of published
bandwidth): +1.0% in 2010, +1,2% in 2011.
❙Quarterly profile volatile.
Euro area: Recovery moderate as well as uneven
June 11, 2010 TMA Europe Conference 11
Euro area: Slow recovery of industrial production
❙Capacity utilization still well below
long-term average.
❙But: Remarkable inflow of orders in
particular from outside euro area; …
❙… industrial confidence recovered
noticeably in early spring; now just
below long-term average …
❙… hinting at further recovery of
production.
June 11, 2010 TMA Europe Conference 12
Euro area: Still no turnaround on labor market
❙Employment:
Q4/2009 -0.3% qoq;
Q3/2009 -0.5% qoq.
❙In April slight increase in
standardized unemployment rate
to 10.1% (highest level since
August 1998).❙Compared to previous year, significant increases in all large EMU member countries (ES, F, IT) except Germany.
June 11, 2010 TMA Europe Conference 13
Germany: Intact recovery
❙Pace of recovery slowed in winter half-
year.❙GDP +0.2% in both Q4/2009 and
Q1/2010.
❙In Q1 marked positive contribution from
inventories, negative contributions from
domestic demand and foreign trade
(imports increased even more than
exports).❙Much stronger momentum expected for Q2.❙Forecasts of GDP growth: mostly above
euro area average in 2010 and 2011,
making Germany temporarily the engine
of growth.
June 11, 2010 TMA Europe Conference 14
Germany: Strong industrial production more than compensates negative impact of cold weather in Q1
❙Further rise in industrial
production in April.
❙Orders: Ongoing strong impulses;
pick-up in demand regionally
broad-based.
❙Stock of orders (according to ifo-
Institute) still as low as during the
last recession 2002/2003.
❙Outlook for 2010: Industrial output
catching up with orders.
June 11, 2010 TMA Europe Conference 15
Germany: Labor market surprisingly robust
❙Employment continued to
increase in April; only slightly
lower than a year ago.
❙In May registered
unemployment declined
significantly, unemployment
rate now at 7.7%.
❙Past fears of looming backlash
refuted by ongoing robustness.
June 11, 2010 TMA Europe Conference 16
Euro area: Moderate rise in prices expected in 2010
❙Recently, inflation accelerated
somewhat in euro area. ❙HICP-inflation:
s.a. +0.1% in May mom; +0.2% in
April mom.❙In April, again marked rise in prices
for energy and unprocessed food.
❙But core rate stabilised at low level.
❙Inflation expectations continue to be
anchored in line with price stability.❙Eurosystem forecasts for 2010 and
2011 (average of published bandwidth):
+1.5% and +1.6%.
Harmonised Consumer Price Index (Overall index / EMU-countries (incl. Germany)) 1)
1) Changing Composition
June 11, 2010 TMA Europe Conference 17
Germany: Consumer prices continue to rise moderately
❙After significant increases
in the two preceding
months, …
❙… consumer prices stopped
rising further in May.
❙Price level: +1.2% compared
to May 2009.
Consumer price index
June 11, 2010 TMA Europe Conference 18
❙So far: Global economy returned to strong growth and recovery probable to continue.
❙Stronger than expected recovery in world trade as upside risk.
❙ In some EMEs in South and East Asia and Latin America already some signs of overheating.
❙Failure to reign in rising sovereign debt in industrialised countries as major downside risk.❙Up to now, no observable impact of Greek crisis on real economy outside of Greece.❙Rising concerns about insufficient consolidation; possibly undermining process of
normalization in financial system.
What are the risks?
June 11, 2010 TMA Europe Conference 19
❙Overall, financial markets stabilizing in recent months with economic recovery gathering steam.
❙Premature to conclude financial conditions have normalized.
❙Banking system’s health generally improving; some banks remain vulnerable.
❙Bank lending activity remains weak.❙Some supply-side effects within the euro area …❙… but decline in Germany mostly due to lower demand – credit crunch only a risk
scenario.
Financial markets assessment
June 11, 2010 TMA Europe Conference 20
Euro-area: Government bond markets strained
❙Continuous stress on government bond
markets due to Greek debt crisis.
❙ Initial decrease of EMU yield spreads over
German Bunds after rescue package was
agreed in early May largely evaporated.
❙Spread widening partly due to falling
Bund yields (“safe haven flows”).
❙Financing conditions of corporations
deteriorated somewhat in May, but
spreads still below 5-year average.
June 11, 2010 TMA Europe Conference 21
Interest rate spreads between EMU government bonds strongly dispersing
❙ Individual spreads of EMU
government bonds over German
Bunds still on a high level.
❙Significant downward effects from
stability measures; spreads rising
again since mid-May.
❙Further increase of uncertainty,
possibly due to doubts about
success of fiscal consolidation
efforts.
June 11, 2010 TMA Europe Conference 22
Exchange rates: Euro strained
❙In May, Euro depreciated
markedly against US-Dollar,
Pound sterling and Yen.
❙Effective exchange rate (against
21 trading partners): since end of
2009 depreciation of about 10%.
❙However, compared to LT
average: level of exchange rate
actually less noteworthy than
pace of change.
June 11, 2010 TMA Europe Conference 23
Stock markets: Uncertainty about future stock price developments above five-year average
❙Strong fall in stock prices in
May. In recent days stock
markets recovered somewhat.
❙Global rise in uncertainty in
EMU, US, Germany and JP;
in Germany below trend.
June 11, 2010 TMA Europe Conference 24
❙All in all: global economic recovery progressed better than expected. ❙Recovery in Germany intact; should pick up again after weak winter half-year.❙GDP growth expected to exceed that of the euro area at least in 2010.
❙At the same time, the outlook for activity unusually uncertain.
❙Deteriorating public budgets in advanced economies major downside risk.
❙Furthermore, the multi-speed nature of the global recovery likely to continue, and current account imbalances likely to widen again over the medium term.
Summing up