On the basis of the information available up to 22 May 2013, Eurosystem staff have prepared projections for macroeconomic developments in the euro area.2 Following a further decline in the first quarter of 2013, real GDP is projected to recover in the course of 2013, with momentum building somewhat in 2014. The recovery in economic activity is expected to be supported by the favourable impact on exports of a gradually rising external demand. Domestic demand should also pick up over time, initially mainly benefiting from a fall in commodity price inflation supporting real incomes and from the accommodative monetary policy stance. In 2014, domestic demand should also benefit from the progress made in fiscal consolidation. However, weak labour market developments and the need for further private sector balance sheet correction in some euro area countries are expected to dampen the medium-term outlook. Altogether, having fallen by 0.5% in 2012, real GDP is projected to decline by 0.6% in 2013 and to increase by 1.1% in 2014. Euro area HICP inflation is projected to decline markedly, from an average rate of 2.5% in 2012 to 1.4% in 2013 and 1.3% in 2014. The initial decline is expected to be driven mainly by a deceleration in the food and energy components, as well as by a small decline in HICP inflation excluding food and energy, reflecting the weakness of economic activity. The stable medium-term outlook reflects the counteracting effects of a decline in energy prices, a moderate rebound in food price inflation and, as the economy recovers, an edging up of domestic inflationary pressure, albeit a moderate one, since capacity utilisation remains low.
Box A Technical assumptions about interest rates, exchange rates, commodity prices and fiscal policies
The technical assumptions about interest rates and commodity prices are based on market expectations, with a cut-off date of 14 May 2013. The assumption about short-term interest rates is of a purely technical nature. Short-term rates are measured by the three-month EURIBOR, with market expectations derived from futures rates. The methodology gives an average level for these short-term interest rates of 0.2% for 2013 and 0.3% for 2014. The market expectations for euro area ten-year nominal government bond yields imply an average level of 2.8% in 2013 and 3.1% in 2014. Reflecting the path of forward market interest rates and the gradual pass-through of changes in market rates to lending rates, both short-term and long-term bank lending rates are expected to bottom out in the second half of 2013 and to rise gradually thereafter. As regards commodity prices, on the basis of the path implied by futures markets in the two-week period ending on the cut-off date, the price of a barrel of Brent crude oil is assumed to fall from USD 112.0 in 2012 to USD 105.5 in 2013 and USD 100.0 in 2014. The prices of non-energy commodities in US dollars are assumed to fall by
5.6% in 2013, before increasing by 0.5% in 2014.3
Bilateral exchange rates are assumed to remain unchanged over the projection horizon at the average levels prevailing in the two-week period ending on the cut-off date. This implies an exchange rate of USD per EUR of 1.31 throughout the
1 On 2 May 2013, the Governing Council decided to publish the projections in the form of midpoints and ranges. The publication of midpoints is
expected to enhance transparency and further facilitate the communication of the projection results, while ranges should be seen as a means to reflect the uncertainty surrounding the projections. The ranges are based on the differences between actual outcomes and previous projections carried out over a number of years. The width of the ranges is twice the average absolute value of these differences. The method used for calculating the ranges, involving a correction for exceptional events, is documented in New procedure for constructing Eurosystem and ECB staff projection ranges, ECB, December
2009, also available on the ECBs website.
2 The Eurosystem staff macroeconomic projections are produced jointly by experts from the ECB and the euro area NCBs. They are a biannual input into the Governing Councils assessment of economic developments and the risks to price stability. More information on the procedures and techniques used is given in A guide to Eurosystem staff macroeconomic projection exercises, ECB, June 2001, which is available on the ECBs website.
3 Oil and food commodity price assumptions are based on futures prices up to the end of the projection horizon. The prices of other non-energy hard commodities are assumed to follow futures until the first quarter of 2014 and thereafter to evolve in line with global economic activity. EU farm gate
prices (in euro), which are now used for forecasting food consumer prices, are projected on the basis of an econometric model that takes into account developments in international food commodity prices. This is the first projection exercise in which these assumptions for EU farm gate prices have been used.
6 June 2013
2
projection horizon, which is 1.8% higher than in 2012. The effective exchange rate of the euro is assumed to appreciate by 2.8% in 2013 and remain unchanged in 2014.
Fiscal policy assumptions are based on individual euro area countries national budget plans that were available on 22 May 2013. They include all policy measures that have already been approved by national parliaments or that have been specified in detail by governments and are likely to pass the legislative process.
The international environment
World real GDP growth (excluding the euro area) is projected to pick up gradually over the projection horizon, rising from 3.6% in 2013 (the same rate as in 2012) to 4.2% in 2014. Since the beginning of 2013, business sentiment and global financial market conditions have improved, as certain key risks such as a sharp fiscal cliff-induced contraction in the United States and a hard landing in China have diminished. However, recent declines in some business surveys have underscored the fragility of the global recovery. The medium-term outlook for the key advanced economies continues to be constrained by several factors: despite some progress in the rebalancing of private sector debt, the level of households indebtedness remains elevated, while there is still a pressing need for fiscal consolidation in some economies. Other obstacles to growth (e.g. high unemployment) are dissipating only gradually. At the same time, growth in emerging economies is expected to remain robust, supported by buoyant credit growth. Many of these economies are expanding at rates close to potential, thereby providing an important support to global growth. World trade is assumed to pick up gradually over the course of next year. In terms of annual growth rates, following a rate of 3.6% in 2012, euro area foreign demand is estimated to grow by 2.7% in 2013 and by 5.6% in 2014.
Real GDP growth projections
Euro area real GDP fell by 0.2% in the first quarter of 2013, declining for the sixth consecutive quarter. Domestic demand declined in the first quarter of the year mainly due to a large fall in investment, reflecting low confidence and the adverse impact of the cold winter weather, mainly on construction activity, particularly in Germany. Private consumption rose slightly, while public consumption declined somewhat.
Exports fell in the first quarter, albeit less than imports, resulting in a positive net trade contribution.
Looking ahead, real GDP is expected to increase in the course of 2013 and to gain momentum in 2014. The
recovery is expected to be supported by the favourable impact on exports of a gradually rising external demand. Domestic demand should also pick up over time, initially bolstered by the unwinding of the effects of the adverse winter weather on activity, especially construction in Germany. Domestic demand should also initially benefit notably from a fall in commodity price inflation supporting real incomes and from the accommodative monetary policy stance. In 2014, it should also be supported by the progress made in fiscal consolidation. However, the adverse impact on domestic demand stemming from still overall low levels of consumer and business sentiment, weak labour market developments and remaining private sector deleveraging needs in some countries is expected to diminish only gradually over the projection horizon. Overall, the recovery is projected to remain subdued by historical standards. In annual average terms, while
6 June 2013
3
real GDP is expected to decline by 0.6% in 2013, it largely reflects a negative carry-over effect stemming from the declines in GDP in late 2012 and in early 2013. In 2014, economic activity is projected to increase by 1.1%. This growth pattern reflects a substantially negative contribution of domestic demand in 2013 and its recovery thereafter, combined with positive contributions from net trade.
Extra-euro area export growth is projected to recover moderately during the course of 2013 and to gain momentum in 2014, mostly supported by a gradual strengthening of external demand. Euro area export market shares, which rose substantially between 2009 and 2012 on the back of improved competitiveness (as measured by the relative performance of extra-euro area export prices compared with competitors export prices in euro terms), are projected to decline somewhat this year, reflecting the appreciation of the euro in 2013, before stabilising during the remainder of the projection horizon. Intra-euro area exports are projected to grow much more slowly than extra-euro area exports owing to the relative weakness of domestic demand within the euro area.
Business investment is projected to stay weak for the greater part of this year due to low sentiment, low capacity utilisation and fragile demand prospects. However, it is projected to pick up from late 2013 onwards, supported by the gradual strengthening of domestic and external demand, the very low level of interest rates, the need to gradually replace the capital stock after several years of subdued investment and a strengthening of profit mark-ups. Nevertheless, the need for further corporate balance sheet restructuring and adverse financing conditions in some euro area countries and sectors are likely to continue to dampen the projected recovery of business investment over the forecast horizon, albeit to a diminishing extent. Residential investment is likely to decline further in 2013 and is expected to remain weak into 2014 owing mostly to further adjustment needs in the housing markets in some countries, weak growth in disposable income and still fragile consumer sentiment. The adverse impact of these factors is expected to more than offset the effect of the relative attractiveness of housing investment in some other countries, where residential investment is supported by historically low mortgage rates. Government investment is expected to decline over the projection horizon owing to the expected fiscal consolidation
Bron: politics.be
Box A Technical assumptions about interest rates, exchange rates, commodity prices and fiscal policies
The technical assumptions about interest rates and commodity prices are based on market expectations, with a cut-off date of 14 May 2013. The assumption about short-term interest rates is of a purely technical nature. Short-term rates are measured by the three-month EURIBOR, with market expectations derived from futures rates. The methodology gives an average level for these short-term interest rates of 0.2% for 2013 and 0.3% for 2014. The market expectations for euro area ten-year nominal government bond yields imply an average level of 2.8% in 2013 and 3.1% in 2014. Reflecting the path of forward market interest rates and the gradual pass-through of changes in market rates to lending rates, both short-term and long-term bank lending rates are expected to bottom out in the second half of 2013 and to rise gradually thereafter. As regards commodity prices, on the basis of the path implied by futures markets in the two-week period ending on the cut-off date, the price of a barrel of Brent crude oil is assumed to fall from USD 112.0 in 2012 to USD 105.5 in 2013 and USD 100.0 in 2014. The prices of non-energy commodities in US dollars are assumed to fall by
5.6% in 2013, before increasing by 0.5% in 2014.3
Bilateral exchange rates are assumed to remain unchanged over the projection horizon at the average levels prevailing in the two-week period ending on the cut-off date. This implies an exchange rate of USD per EUR of 1.31 throughout the
1 On 2 May 2013, the Governing Council decided to publish the projections in the form of midpoints and ranges. The publication of midpoints is
expected to enhance transparency and further facilitate the communication of the projection results, while ranges should be seen as a means to reflect the uncertainty surrounding the projections. The ranges are based on the differences between actual outcomes and previous projections carried out over a number of years. The width of the ranges is twice the average absolute value of these differences. The method used for calculating the ranges, involving a correction for exceptional events, is documented in New procedure for constructing Eurosystem and ECB staff projection ranges, ECB, December
2009, also available on the ECBs website.
2 The Eurosystem staff macroeconomic projections are produced jointly by experts from the ECB and the euro area NCBs. They are a biannual input into the Governing Councils assessment of economic developments and the risks to price stability. More information on the procedures and techniques used is given in A guide to Eurosystem staff macroeconomic projection exercises, ECB, June 2001, which is available on the ECBs website.
3 Oil and food commodity price assumptions are based on futures prices up to the end of the projection horizon. The prices of other non-energy hard commodities are assumed to follow futures until the first quarter of 2014 and thereafter to evolve in line with global economic activity. EU farm gate
prices (in euro), which are now used for forecasting food consumer prices, are projected on the basis of an econometric model that takes into account developments in international food commodity prices. This is the first projection exercise in which these assumptions for EU farm gate prices have been used.
6 June 2013
2
projection horizon, which is 1.8% higher than in 2012. The effective exchange rate of the euro is assumed to appreciate by 2.8% in 2013 and remain unchanged in 2014.
Fiscal policy assumptions are based on individual euro area countries national budget plans that were available on 22 May 2013. They include all policy measures that have already been approved by national parliaments or that have been specified in detail by governments and are likely to pass the legislative process.
The international environment
World real GDP growth (excluding the euro area) is projected to pick up gradually over the projection horizon, rising from 3.6% in 2013 (the same rate as in 2012) to 4.2% in 2014. Since the beginning of 2013, business sentiment and global financial market conditions have improved, as certain key risks such as a sharp fiscal cliff-induced contraction in the United States and a hard landing in China have diminished. However, recent declines in some business surveys have underscored the fragility of the global recovery. The medium-term outlook for the key advanced economies continues to be constrained by several factors: despite some progress in the rebalancing of private sector debt, the level of households indebtedness remains elevated, while there is still a pressing need for fiscal consolidation in some economies. Other obstacles to growth (e.g. high unemployment) are dissipating only gradually. At the same time, growth in emerging economies is expected to remain robust, supported by buoyant credit growth. Many of these economies are expanding at rates close to potential, thereby providing an important support to global growth. World trade is assumed to pick up gradually over the course of next year. In terms of annual growth rates, following a rate of 3.6% in 2012, euro area foreign demand is estimated to grow by 2.7% in 2013 and by 5.6% in 2014.
Real GDP growth projections
Euro area real GDP fell by 0.2% in the first quarter of 2013, declining for the sixth consecutive quarter. Domestic demand declined in the first quarter of the year mainly due to a large fall in investment, reflecting low confidence and the adverse impact of the cold winter weather, mainly on construction activity, particularly in Germany. Private consumption rose slightly, while public consumption declined somewhat.
Exports fell in the first quarter, albeit less than imports, resulting in a positive net trade contribution.
Looking ahead, real GDP is expected to increase in the course of 2013 and to gain momentum in 2014. The
recovery is expected to be supported by the favourable impact on exports of a gradually rising external demand. Domestic demand should also pick up over time, initially bolstered by the unwinding of the effects of the adverse winter weather on activity, especially construction in Germany. Domestic demand should also initially benefit notably from a fall in commodity price inflation supporting real incomes and from the accommodative monetary policy stance. In 2014, it should also be supported by the progress made in fiscal consolidation. However, the adverse impact on domestic demand stemming from still overall low levels of consumer and business sentiment, weak labour market developments and remaining private sector deleveraging needs in some countries is expected to diminish only gradually over the projection horizon. Overall, the recovery is projected to remain subdued by historical standards. In annual average terms, while
6 June 2013
3
real GDP is expected to decline by 0.6% in 2013, it largely reflects a negative carry-over effect stemming from the declines in GDP in late 2012 and in early 2013. In 2014, economic activity is projected to increase by 1.1%. This growth pattern reflects a substantially negative contribution of domestic demand in 2013 and its recovery thereafter, combined with positive contributions from net trade.
Extra-euro area export growth is projected to recover moderately during the course of 2013 and to gain momentum in 2014, mostly supported by a gradual strengthening of external demand. Euro area export market shares, which rose substantially between 2009 and 2012 on the back of improved competitiveness (as measured by the relative performance of extra-euro area export prices compared with competitors export prices in euro terms), are projected to decline somewhat this year, reflecting the appreciation of the euro in 2013, before stabilising during the remainder of the projection horizon. Intra-euro area exports are projected to grow much more slowly than extra-euro area exports owing to the relative weakness of domestic demand within the euro area.
Business investment is projected to stay weak for the greater part of this year due to low sentiment, low capacity utilisation and fragile demand prospects. However, it is projected to pick up from late 2013 onwards, supported by the gradual strengthening of domestic and external demand, the very low level of interest rates, the need to gradually replace the capital stock after several years of subdued investment and a strengthening of profit mark-ups. Nevertheless, the need for further corporate balance sheet restructuring and adverse financing conditions in some euro area countries and sectors are likely to continue to dampen the projected recovery of business investment over the forecast horizon, albeit to a diminishing extent. Residential investment is likely to decline further in 2013 and is expected to remain weak into 2014 owing mostly to further adjustment needs in the housing markets in some countries, weak growth in disposable income and still fragile consumer sentiment. The adverse impact of these factors is expected to more than offset the effect of the relative attractiveness of housing investment in some other countries, where residential investment is supported by historically low mortgage rates. Government investment is expected to decline over the projection horizon owing to the expected fiscal consolidation
Bron: politics.be