European Central Bank — Economic Bulletin (Europe, 2015)

Economic Bulletin Issue 3 / 2015 30 53%100%3,5E7,5E6EEEE80 6E6EE   European Central Bank, 2015 Postal address 60640 Frankfurt am Main Germany Telephone +49 69 1344 0 Website www.ecb.europa.eu This Bulletin was produced under the responsibility of the Executive Board of the ECB. Translations are prepared and published by the national central banks. All rights reserved. Reproduction for educational and non-commercial purposes is permitted provided that the source is acknowledged. The cut-off date for the statistics included in this issue was 14 April 2015. ISSN 2363-3417 (epub) ISSN 2363-3417 (online) EU catalogue number QB-BP-15-003-EN-E (epub) EU catalogue number QB-BP-15-003-EN-N (online) contents update on economic and monetary developments Summary 1 External environment 2 Financial developments 3 Economic activity 4 Prices and costs 5 Money and credit Boxes Box 1 Japan s recent net export performance Box 2 Recent developments in the consumption of durable goods Box 3 What has been driving consumer confidence? Box 4 Developments in longer-term inflation expectations in the euro area Box 5 Broad money and lending in the United States during the implementation of the Federal Reserve s large-scale asset purchase programmes article Understanding the weakness in world trade statistics 5 6 8 9 1 1 1 3 1 5 1 9 2 2 2 5 2 7 3 3 s1 ECB Economic Bulletin Issue 3 / 2015 3 u p d a t e o n ec o n o m i c a n d m o n e t a r y d e v e l o p m e n t s summary Global economic activity indicators continue to suggest a steady growth momentum in early 2015. In particular, activity remains solid in both the United States, despite signs of temporary weakness at the start of the year, and the United Kingdom. At the same time, the recovery remains tepid in Japan. Weakening growth in China has led to the implementation of stimulus measures. Decreasing import volumes in emerging markets constitute renewed signs of a softening in global trade. Low energy prices have lowered global headline inflation rates. Developments in euro area financial markets in March were influenced above all by the start of the Eurosystem s purchases of euro-denominated public sector securities on 9 March. Government bond yields declined further across maturities and most countries. The valuation of stocks and other types of asset increased notably. In the euro area the latest economic indicators and survey results are consistent with continued economic expansion in the first quarter of 2015. Looking beyond the short term, the monetary policy measures taken recently by the Governing Council, the low oil price and the depreciation of the euro should help broaden and gradually strengthen the recovery. At the same time, although labour markets have shown some further signs of improvement, unemployment remains high and economic slack is expected to diminish only gradually. Annual euro area HICP inflation was -0.1% in March, after a low of -0.6% in January and -0.3% in February. On the basis of current information, inflation is expected to stay very low or negative in the coming months, before starting to increase gradually later in 2015. The gradual increase should be supported by the favourable impact of the ECB s monetary policy measures on aggregate demand, the impact of the lower euro exchange rate and the assumption embedded in futures markets of somewhat higher oil prices in the years ahead. Monetary analysis indicates that the annual growth of M3 has recovered further. Moreover, the decline in loans to non-financial corporations has continued to moderate, while the annual rate of growth of loans to households has stabilised at a slightly positive level. The ECB s monetary policy measures are helping to restore the proper functioning of the monetary policy transmission mechanism and to ease bank lending conditions. Bank funding costs and lending rates have declined further, and the most recent euro area bank lending survey points to further easing of credit standards. Based on its regular economic and monetary analyses and in line with its forward guidance, the Governing Council decided at its meeting on 15 April 2015 to keep the key ECB interest rates unchanged. Looking ahead, the Governing Council s focus will be on the full implementation of the monetary policy measures it has taken. These measures will contribute to a further improvement in the economic outlook, a reduction in economic slack and a recovery in money and credit growth. Together, such developments will lead to a sustained return of inflation towards a level below, but close to, 2% over the medium term and will underpin the firm anchoring of medium to long-term inflation expectations. ECB Economic Bulletin Issue 3 / 2015 5 1 external environment Notwithstanding some softening in activity towards the end of 2014, latest surveys continue to suggest steady global growth in early 2015. The global composite output PMI increased further in March, pointing to sustained growth in global GDP. In quarterly terms, the index recorded a slight rise in the first quarter of 2015 relative to the previous quarter (see Chart 1), returning to its long-term average. Developments were mixed across advanced economies in the first quarter, with increases in the United States and the United Kingdom, but a decline in Japan. Turning to emerging market economies (EMEs), PMIs increased further in India and rebounded in Brazil, while they remained broadly unchanged in China and continued to decline in Russia. Global trade has shown signs of softening again recently. The volume of world merchandise imports increased by only 0.2% in January on a three-month-on-three-month basis, down from 1.4% in December. This decline in momentum was driven by falling import volumes in emerging markets, in particular in China, which might be partly related to the timing of the Chinese New Year. However, the pace of growth in imports among advanced economies continued to increase overall, and the global PMI for new export orders remained stable in the first quarter of 2015, suggesting a steady momentum in world trade growth. Low energy prices are weighing on global headline inflation rates. Annual inflation in OECD countries remained low in February at 0.6%, as the annual rate of growth in energy prices remained negative (see Chart 2). Excluding food and energy, annual inflation in OECD countries declined only marginally to 1.7%. By contrast, consumer price inflation among major non-OECD countries rose in February and March, picking up slightly in China on the back of rising food prices and increasing further in Brazil and Russia owing to administered price increases and the impact of the depreciation of the rouble and the food embargo respectively. chart 1 Global composite output pmi and Gdp chart 2 consumer prices (left-hand side: diffusion index, quarterly averages; right-hand side: quarter-on-quarter growth; quarterly data) (year-on-year percentage changes; monthly data) global GDP (right-hand scale) PMI composite output (left-hand scale) PMI composite output long-term average (left-hand scale) OECD countries China Brazil Russia 65 60 55 50 45 40 35 2007 2008 2009 2010 2011 2012 2013 2014 1.8 1.2 0.6 0.0 -0.6 -1.2 -1.8 18 16 14 12 10 8 6 4 2 0 -2 2007 2008 2009 2010 2011 2012 2013 2014 18 16 14 12 10 8 6 4 2 0 -2 Sources: Markit and ECB. Note: The latest observation refers to the first quarter of 2015 for PMI and the fourth quarter of 2014 for GDP. Sources: National sources and OECD. Note: The latest observation refers to March 2015 for individual countries and to February 2015 for OECD countries. ECB Economic Bulletin Issue 3 / 2015 6 US activity remains buoyant, although it softened at the end of 2014 and showed signs of temporary weakness at the start of 2015. Real GDP grew by 0.5% quarter on quarter in the fourth quarter of 2014, down from 1.2% in the previous quarter, largely reflecting a negative contribution from net trade. Recent indicators suggest a slight but transitory slowdown in the first quarter of 2015, mainly owing to cold weather and port disruptions. However, consumption remains sound, supported by lower oil prices, strengthened household balance sheets and improved consumer confidence. The underlying labour market momentum also remains robust, notwithstanding a slowdown in job creation in March. At the same time inflation stayed low, reflecting low oil prices and the appreciation of the US dollar. Annual headline CPI was flat in February, after having fallen slightly into negative territory in January owing to lower energy and import prices. Excluding food and energy, inflation picked up slightly, driven mainly by higher prices for services. The recovery remains tepid in Japan, while inflation continues to fall. After the return to positive growth at the end of 2014, the pace of growth in the Japanese economy was muted at the start of 2015. Both industrial production and real exports of goods improved up to February, but real imports of goods have also picked up significantly (see Box 1). Available monthly indicators for private consumption have remained weak overall, while the Bank of Japan s Tankan survey for March 2015 only signalled an improvement in business confidence among non-manufacturing firms compared with December 2014. Meanwhile, after a brief pause at the turn of the year,