from crisis to recovery: the challenges ahead for the european...

From Crisis to Recovery: The Challenges ahead for the European Economy

Moreno Bertoldi

Head of Unit

Countries of the G-20, IMF, G-groups

European Commission

COMEXI24 June 2014

PART I:

Current Economic Conditions

3

World trade and GlobalPMI manufacturing output

Global economic conditions

Source: European Commission

30

40

50

60

70

-20

-15

-10

-5

0

5

10

15

20

25

08 09 10 11 12 13 14

World trade volume, CPB data (lhs)

Global PMI manufacturing output (rhs)

y-o-y% 3-month moving average

Economic Forecast for the EUSpring 2014

Forecast for the EU 2012 2013 2014 2015

GDP growth (%, yoy) -0,4 0,1 1,6 2,0

Inflation (%, yoy) 2,6 1,5 1,0 1,5

Unemployment (%) 10,4 10,8 10,5 10,1

Public budget balance (% of GDP) -3,9 -3,3 -2,6 -2,5

Gross public debt (% of GDP) 86,8 88,9 89,5 89,2

Current account balance (% of GDP)

0.9 1,6 1,8 1,8

4

Economic Forecast for the Euro AreaSpring 2014

Forecast for the EA 2012 2013 2014 2015

GDP growth (%, yoy) -0.7 -0.4 1.2 1.7

Inflation (%, yoy) 2.5 1.3 0.8 1.2

Unemployment (%) 11.3 12.0 11.8 11.4

Public budget balance (% of GDP) -3,9 -3,3 -2,6 -2,5

Gross public debt (% of GDP) 92.7 95.0 96.0 95.4

Current account balance (% of GDP)

1.8 2.6 2.9 2.9

5

GDP and components, EU

6

-5.5

-4.5

-3.5

-2.5

-1.5

-0.5

0.5

1.5

2.5

3.5

05 06 07 08 09 10 11 12 13 14 15

Private consumption Government consumption

Investment Inventories

Net exports GDP (y-o-y%)

forecast

pps

7

European growth map 2012


8



9



10



Ten-year government-bond yields, selected EU Member States

11

Sovereign bond markets


0

2

4

6

8

09 10 11 12 13 14

DE ES

FR IT

UK

%

Fiscal consolidation isshowing results

General government budget balance, euro area (SF2014)

General government debt,EU and euro area (SF2014)

12

55

60

65

70

75

80

85

90

95

100

07 08 09 10 11 12 13 14 15

EA

EU

% of GDP

forecast

-7

-6

-5

-4

-3

-2

-1

0

1

2

-7

-6

-5

-4

-3

-2

-1

0

1

2

09 10 11 12 13 14 15

General goverment balance (lhs)

Structural balance (rhs)

forecast

% of GDP pps.

Rebalancing is progressing…

• Fragile recovery in Europe, signs of a turnaround in vulnerable economies, internal rebalancing underway

GDP growth (2008=100) Current account balance (% of GDP)

Note: The definition of surplus / deficit countries is based on the average current account balance in the 1999-2007 period. Surplus countries: BE, DE, LU, NL, AT, FI; Deficit countries: IE, EL, ES, FR, IT, CY, MT, PT, SI, SK

13

90

92

94

96

98

100

102

104

106

108

110

08 09 10 11 12 13 14 15

DE IE ESFR IT NLEuro area

index, 2008=100forecast

-4

-2

0

2

4

6

8

99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15

Surplus countries Deficit countries Euro area

% of GDPforecast

… what about inflation?

14

-1

0

1

2

3

4

5

07 08 09 10 11 12 13 14 15

%

Energy and unprocessed food [pps.]

Other components (core inflation) [pps.]

HICP, all items

forecast


ECB Monetary policy decisions – 05 June 2014

• What:

• Reductions in the key ECB interest ratesInterest rate on the main refinancing operations of the Eurosystem: 0.15% (-10 bp)

Interest rate on the marginal lending facility: 0.40% (-35 bp)

Interest rate on the deposit facility: -0.10% (-10bp)

• Targeted longer-term refinancing operations

• Intensify preparatory work related to outright purchases of ABS

• Prolongation of fixed rate, full allotment tender procedures

• Why:

• Provide additional monetary policy accommodation

• Support lending to the real economy

• Return of inflation rates to levels closer to 2%

15

PART II:

THE LEGACY OF THE CRISIS

The impact is far-reaching in many countries

Unemployment rates in %

0

5

10

15

20

25

30

EU

27 AT

DE

LU

NL

MT

RO

DK

CZ

UK FI

BE

SE

EE SI

PL

FR

HU IT

BG LT IE CY

LV

SK PT

HR

ES

EL

%

December 2007 March 2013

Investment in EA is low

18

Source: Commission Winter Forecast 2014

'09 '13 vs '09 '15 vs '13

DE -11.7 9.7 8.7

FR -10.6 1.1 4.3

IT -11.7 -14.7 5.4

UK -16.7 -0.8 14.1

US -13.1 14.0 13.5

EA-18 -12.8 -5.8 6.0

Credit conditions remain heterogeneous

19

1

2

3

4

5

6

7

ene 12 abr 12 jul 12 oct 12 ene 13 abr 13 jul 13 oct 13 ene 14

DE ES FR IT PT EA

%

PT

ESIT

EAFRDE

selected Member States

Source: ECB

Conclusions PART II:

- Despite good progress, many challenges remain

- Debt will continue to be a drag on growth

- Growth potential has been damaged by the crisis

- Risk of social and political instability

PART III:

REFORMS MUST CONTINUE

Sustained action is needed at the national,and EU/EA level, both in the short term, andlong-term:

- Continue with a growth friendly fiscal consolidation

- Step up the pace of structural reforms

- Finalise financial sector repair

- Complete the banking union

- Promote non-bank finance

22

What remains to be done?

Growth-friendly fiscal consolidation

• Further adjustment is still required

• Key challenge: Growth-friendly fiscal consolidation

• Expenditure side: increase quality public expenditure, prioritising productive investment

• Revenue side: make the tax system more fair and efficient

• Increased fiscal responsibility is a lasting feature

• Improved surveillance and monitoring tools both at the MS and EA level

23

Structural reforms must continue

� Structural reforms needed to boost growth and facilitate rebalancing

� Vulnerable countries have made significant progress, but more is needed to spur external competitiveness.

24

Source: OECD

25

� In these countries, combining labour market and product market reforms can mitigate negative short-term effects

� Less progress has been made in core countries

� Internal market needs to be completed, starting with energy

Source: OECD

Structural reforms must continue

Complete financial repair

• ECB Comprehensive Assessment

• Supervisory Risk Assessment

• Asset Quality Review

• Stress Test

• Results in October

• Timebound correction for capital shortfalls

26

Complete the banking union

• Single supervisor

• Single resolution mechanism

27

Promoting long-term finance

• Measures to reduce reliance on bank finance

• Concrete initiatives to follow under the new Commission

28

THANK YOU

29

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