mip indicators fit for purpose presentation & discussion estp course luxembourg 10 december 2014...

MIP indicators fit for purpose

presentation & discussion

ESTP CourseLuxembourg 10 December 2014

MIP TF

Outline

• AMR Statistical Annex 2015• Data sources• Recent changes in methodology • Impact on SA data• Presentation of indicators

SA to 2015 AMR

• 4th round of MIP• Eurostat in charge of SA production (1st time)• Complete SA: 54 indicators for a total of

14,840 values• Data presented by SB, year, indicator, country• Introduction presenting the main statistical

developments

Flashes per countryCY 6 programme MT 3ES 5 IDR - 2 FI 3 IDR - 3EL 5 programme IT 3 IDR - 1IE 4 IDR - 2 UK 3 IDR - 3PT 4 IDR - 4 SE 3 IDR - 3NL 4 IDR - 3 SI 3 IDR - 1HU 4 IDR - 2 DK 3HR 4 IDR - 1 LV 3EE 4 AT 2BG 4 IDR - 3 SK 2DE 3 IDR - 3 LT 2FR 3 IDR - 2 PL 2LU 3 CZ 2BE 3 IDR - 3 RO 1 IDR - 4

IDR - 1 previously identified excessive imbalancesIDR - 2 imbalances in need of decisive policy actionIDR - 3 imbalances potentially overcomeIDR - 4 just out of the programme

Data sources – Headline indicatorsIndicator Data source Statistical domain

Current account balance Eurostat BoP/NA

Net international investment position Eurostat / ECB BoP/NA

Real effective exchange rate DG ECFIN

Export market shares Eurostat, IMF BoP

Nominal unit labour cost Eurostat NA

House prices Eurostat Price statistics / NA

Private sector credit flow Eurostat NA (FA)

Private sector debt Eurostat NA (FA)

General government sector gross debt Eurostat GFS

Unemployment rate Eurostat LFS

Total financial sector liabilities Eurostat NA (FA)

Data sources – Auxiliary indicatorsIndicator Data source Statistical domain

Real GDP Eurostat NA Gross Fixed Capital Formation Eurostat NA Gross Domestic Expenditure on R&D Eurostat Business Statistics/ NA Net Lending/Borrowing Eurostat BoP/NA Net External Debt Eurostat / ECB BoP/ NA Inward FDI Flows Eurostat BoP/NA Inward FDI Stocks Eurostat BoP/NA Net Trade Balance of Energy Products Eurostat International Trade/ NA Real Effective Exchange Rates - EA trading partners DG ECFIN Share of OECD exports Eurostat/OECD BoP Terms of Trade Eurostat NA Export Market Shares - in volume IMF Labour Productivity Eurostat NA Nominal unit labour cost Eurostat NA Unit labour cost performance related to EA DG ECFIN Nominal house price index Eurostat Price statistics / NA Residential Construction Eurostat NA Private Debt, non-consolidated Eurostat NA (FA) Financial Sector Leverage (debt to equity) Eurostat NA (FA)

Recent changes in methodologyESA2010 implementation

•R&D expenditure is now investment•Expenditure on weapon systems is now investment•Value of goods sent abroad for processing no longer impacts gross exports and imports •More detailed analysis of pension schemes•Financial activities will be described in more detail at the level of subsectors and instruments

Recent changes in methodology

BPM6 implementation

•Goods for processing and services under merchanting will be recorded as manufacturing services•Financial activities will be described in more detail at the level of subsectors and instruments•Research and development is now treated as produced assets

ESA 2010 and BPM6: impact on SA

• Affected indicators:• 10 out of 11 headline indicators

• 19 out of 28 auxiliary indicators

For a total of 8120 values• Twofold impact:

Numerator and denominator/deflator

Flashes per indicator2004 2008 2013

Current account balance 15 18 5

Net international investment position 9 15 16

Real Effective Exchange Rate 16 10 0

Share of world exports 6 13 17

Unit Labour Cost 11 14 5

House Price Index 14 4 2

Private sector credit flow 5 14 1

Private sector debt 8 13 15

General government gross debt 9 9 16

Unemployment rate 9 3 14

Total financial sector liabilities 8 4 0

Current Account Balance

CAB - Definition

The MIP indicator is the three-year backward moving average of the current account balance expressed in percent of GDP

[[(CA/GDP)t + (CA/GDP)t-1 + (CA/GDP)t-2] / 3]*100

based on Eurostat data from Balance of Payments

Thresholds: -4% and +6%

CAB - Rationale

• Current Account is the major driver of net lending/borrowing of the economy.

• A high current account deficit indicates that the economy is borrowing (typically importing in excess of its exports) and it might lead to an unsustainable external debt position.

• In turn, a high current account surplus maybe considered worrisome when it reflects weaknesses in domestic demand.

CAB - Auxiliaries indicators

• Special attention to catching up economies

• Inward FDI flows in % of GDP• Destination of capital flow is relevant: FDI inflows provide a

relatively safe finance of Current Account deficits

• Net lending / borrowing in % GDP• Current Account deficits can be financed by EU Structural

Funds which are included under the Capital Account

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013BE 3.7 2.9 2.3 1.9 0.8 0.0 -0.7 -0.7 -1.1 -1.6BG -4.7 -7.8 -11.9 -18.1 -22.0 -19.1 -11.2 -3.4 -0.7 0.4CZ -5.4 -4.0 -2.7 -2.4 -2.8 -2.9 -2.6 -2.7 -2.4 -1.7DK 3.0 3.6 3.4 2.9 2.4 2.5 3.9 4.9 5.7 6.1DE 2.6 3.5 5.0 5.8 6.2 6.2 5.8 5.9 6.3 6.7EE -12.0 -11.2 -11.9 -12.9 -12.9 -7.1 -1.5 1.4 -0.1 -1.2IE -0.6 -2.1 -4.2 -6.7 -8.1 -8.4 -6.4 -4.2 -1.5 1.1EL -6.3 -6.7 -8.3 -11.2 -13.6 -13.6 -12.1 -10.3 -7.4 -3.9ES -4.0 -5.4 -7.2 -8.8 -9.5 -8.1 -6.3 -4.3 -2.5 -0.7FR 0.8 0.4 0.2 -0.1 -0.4 -0.7 -0.9 -0.9 -1.1 -1.3HR -5.8 -5.2 -5.4 -6.4 -7.6 -7.1 -5.1 -2.4 -0.8 -0.1IT -0.6 -0.8 -1.0 -1.3 -1.9 -2.1 -2.7 -2.8 -2.3 -0.9CY -3.7 -4.4 -6.0 -8.2 -11.5 -12.7 -12.1 -8.0 -6.7 -4.0LV -8.0 -10.1 -14.7 -17.7 -17.9 -8.3 -0.6 2.5 -1.2 -2.8LT -6.5 -7.1 -8.4 -10.7 -12.7 -7.9 -3.7 -0.7 -1.8 -1.2LU 9.5 10.2 11.3 10.7 9.2 8.2 7.1 6.8 6.3 5.5HU -7.6 -7.9 -7.6 -7.1 -7.1 -5.0 -2.5 0.1 1.0 2.2MT -1.3e -4.3e -6.1e -5.5e -3.6e -2.5 -3.9 -1.9 0.9 4.0NL 5.3 6.9 8.1 7.8 6.8 5.4 5.6 7.2 8.7 9.8AT 2.2 2.0 2.4 2.8 3.9 3.7 3.3 2.4 2.0 1.4PL -3.5 -3.4 -3.8 -4.1 -5.5 -5.5 -5.2 -4.7 -4.6 -3.3PT -8.0 -8.5 -9.6 -10.1 -10.8 -10.8 -10.9 -8.9 -6.1 -2.5RO -5.9 -7.6 -9.1 -10.8 -11.8 -9.8 -6.9 -4.6 -4.6 -3.3SI -0.8 -1.7 -2.0 -2.6 -3.8 -3.4 -2.0 -0.2 0.9 2.8SK -7.2 -7.4 -8.1 -7.2 -6.4 -4.7 -4.2 -3.4 -1.8 0.2FI 6.2 4.5 4.2 3.6 3.3 2.7 1.8 0.5 -0.8 -1.7SE 6.1 5.0 6.7 7.9 8.6 7.8 6.8 5.9 5.9 6.1UK -1.9 -1.6 -1.8 -2.1 -2.9 -3.1 -3.0 -2.4 -2.7 -3.2

CAB – Statistical Annex

Current account balances of surplus/deficit countries as % of GDP

CA %

GDP

BG, CZ, EE, IE, EL, ES, FR, HR, IT, CY, LV, LT, HU, MT

BE, DK, DE, LU, NL, AT, FI, SE

CAB – Evolution of external positions

CAB - Statistical issues

1. Impact of the new statistical methodology (BPM6) and effect on back data availability

2. Asymmetries between Countries (especially financial flows)

3. Inconsistencies with Current external balances (RoW) in National Account

CAB - Issues 1Impact of BPM6 methodology (2013)

3.5 pp to 0.5 pp MT, HU, ES, FR

0.5 pp to 0 pp PT, CZ, PL, BE, RO, SE, UK

0 pp to - 0.5 pp EL, HR, IT, SI, DK, LT, FI, LU

-0.5 pp to -3.5 pp DE, EE, AT, LV, IE

Impact on 3 years average of Current Account balance as % of GDP

Note: 3years BPM6 data for Bulgaria, Cyprus, Netherlands and Slovakia are missing.

CAB - Issues 1CA back data availability (BPM6)

Statistical Annex to the Alert Mechanism Report 2015

CAB - Issues 2Asymmetries between Countries

(505 & 555)

(330)

(200)

Relative size of inconsistency

(BoP-RoW)/BoP

EU*

* Based on the Countries available (both BPM6 and ESA2010)

CAB - Issue 3The evolution of inconsistencies

BoP-RoW (BoP-RoW)/BoP

CAB - Issue 3National inconsistencies (2013)

CAB - Actions

1. Revision of thresholds to be discussed at LIME. Back data for BPM6 are being progressively collected from Member States

2. New methodological guidance embedded in BPM6 (such as incorporation of SPEs).

3. Efforts in further promoting the usage of the FDI network (for MS to reconcile specific transactions)

CAB - Actions

3. The results of the official 2014 BoP/RoW survey will be presented at the BoPWG in April 2015.

4. ECB will also carry out a similar exercise for Euro Area statistics.

5. Further monitoring work is planned to verify BMP6 actually delivers statistics more consistent with ESA2010.

Net International Investment Position

IIP - Definition

The MIP indicator is the net international investment position expressed in percent of GDP

IIP/GDP

based on Eurostat data from Balance of Payments

Threshold: -35%

IIP - Rationale

• As it is the stock counterpart to the current account balance it allows for a stock-flow analysis of external positions.

• Typically, highly negative NIIPs result from persistently high current account deficits. However, external imbalances can reflect other type of imbalances (e.g. excessive credit expansion).

• What determines the overall vulnerability of the external position of a country is not only its size but also the types of maturities of both gross assets and liabilities.

IIP - Auxiliaries indicators

• The objective is to qualify the amount of liabilities according to the impact on a country's vulnerability

• Net external debt in % GDP - annual data• Focus on liabilities that require a repayment (excludes portfolio

FDI, equity and derivatives)

• Inward FDI stocks in % of GDP• These are relatively less risky and stable form of financing and

increase less one country's vulnerability

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013BE 28.4 33.5 29.4 28.9 39.7 54.2 50.9 48.1 47.6 45.8BG -30.1 -44.1 -58.0 -81.1 -98.4 -101.8 -95.4 -85.9 -78.2 -76.2CZ -28.2 -26.9 -32.3 -38.7 -38.2 -44.0 -46.1 -45.3 -46.1 -40.1DK -5.3 3.9 -0.2 -5.8 -5.1 4.4 14.0 28.7 37.8 39.7DE 10.7 21.0 27.9 26.5 25.5 34.0 35.4 33.7 34.7 42.9EE -86.3 -84.7 -73.3 -71.3 -75.4 -80.1 -71.2 -55.6 -52.2 -47.1IE -17.9 -24.5 -5.3 -19.5 -75.6 -92.4 -88.0 -112.2 -112.0 -104.9EL -67.0 -77.3 -85.4 -96.1 -74.1 -86.4 -98.3 -85.2 -109.2 -121.1ES -51.9 -55.6 -65.8 -78.1 -79.3 -93.8 -89.1 -91.4 -90.0 -92.6FR -4.7 1.1 1.1 -1.5 -13.3 -14.1 -8.5 -7.5 -11.3 -15.6HR -47.7 -56.5 -77.0 -92.8 -75.3 -87.4 -95.9 -92.0 -89.9 -88.7IT -16.7 -17.7 -22.8 -24.1 -24.7 -26.1 -24.7 -23.4 -28.6 -30.7CY 14.0 19.9 37.8 11.7 -15.1 -30.4 -35.6 -71.7 -147.3 -156.8LV -47.0 -55.6 -64.2 -69.2 -74.1 -82.4 -81.9 -74.4 -66.8 -65.1LT -34.4 -42.6 -48.9 -55.8 -51.5 -58.4 -55.4 -52.2 -53.0 -46.4LU 116.1 133.5 140.5 105.0 158.8 155.1 153.6 191.5 207.2 216.4HU -83.9 -92.5 -95.5 -88.9 -102.7 -116.1 -109.4 -106.7 -94.1 -84.4MT 37.4e 34.6e 26.5e 19.4e 4.5e 24.0 35.1 39.2 53.7 49.2NL 3.7 -2.6 3.2 -6.0 4.2 16.7 24.5 34.1 45.8 31.3AT -17.3 -21.7 -12.9 -9.8 -10.1 -5.1 -5.2 -1.9 -3.1 -0.2PL -41.6 -42.5 -45.7 -50.1 -56.3 -58.8 -65.2 -62.7 -65.4 -68.0PT -66.8 -69.9 -79.3 -88.8 -95.1 -107.9 -104.3 -101.0 -113.8 -116.2RO -26.4 -29.5 -36.2 -47.1 -52.5 -62.0 -63.8 -65.6 -67.3 -62.4SI -7.7 -10.8 -16.8 -21.3 -35.1 -38.9 -42.4 -40.2 -45.2 -38.2SK -39.9 -48.6 -53.5 -51.5 -57.4 -66.7 -63.1 -65.5 -64.1 -65.1FI -9.3 -14.0 -12.4 -25.9 -2.5 6.4 19.7 18.1 14.7 8.8SE -24.9 -20.6 -2.1 10.4 -1.5 0.6 2.9 -9.2 -9.0 -10.8UK -11.4 -7.9 -13.1 -11.3 5.9 -13.4 -6.0 -4.4 -14.9 -15.6

IIP – Statistical Annex

IIP - Statistical Issues

1. Impact of the new statistical methodology (BPM6) and effect on back data availability

2. Increased reporting requirements related to EU legal acts

3. little is known about the discrepancies observed between national IIP and NFAs (RoW) data

35 pp to 8 pp LU, MT, FR, HU

8 pp to 0 pp ES, CZ, PT, PL, SI, EE

0 pp to - 8 pp LV, RO, LT, AT, IT, EL, SE, DE, FI

-8 pp to -75 pp UK, NL, CY

Impact on Net International Investment Position as % of GDP

Note: France is based on 2012 data. BPM6 data for Belgium, Bulgaria, Denmark, Ireland, Croatia, Slovakia are missing

IIP - Issues 1Impact of BPM6 methodology (2013)

IIP - Issues 1IIP back data availability (BPM6)

Statistical Annex to the Alert Mechanism Report 2015

IIP - Issue 2Increased reporting requirements

Since June 2014 national compilers are reporting additional detail of the Financial Account and International Investment Position also to Eurostat.

Higher frequency (monthly), More components (IIP) andHigher breakdown (geo)

Have resources been allocated to achieve this shift?

Relative size of inconsistency

(BoP-RoW)/BoP

EU*

* Based on the Countries available (both BMP6 and ESA2010)

IIP - Issue 3The evolution of inconsistencies

IIP - Actions

1. Back data for BPM6 are being progressively collected from Member States.

2. Annual exercise of Quality Reports was suspended in 2014. A new template has been designed for the 2015 exercise and it now covers also IIP.

IIP - Actions

3. The 2014 BoP/RoW survey will include for the first time Financial Accounts but should not include stocks.

4. Further monitoring work is planned to verify BMP6 actually delivers statistics more consistent with ESA2010.

Real Effective Exchange Rate

Effective Exchange RateBilateral exchange rates do not move together, so we need some method to summarise the overall strength or weakness of a country’s currency

The nominal effective exchange rate (NEER) is defined as the exchange rate of the domestic currency vis-à-vis other currencies weighted by their share in world trade

• Which currencies?• What weights?• Significance of the base year

Real Effective Exchange RateReal effective exchange rate (REER) also takes account of price level changes between countries

• adjusts the NEER by the ratio of foreign to domestic inflation

• assess change in competitive position of a country relative to its competitors

Example• suppose currency of country A has depreciated over one

year by 10% against currency of country B• suppose inflation rate in A is 7% and in B is 2%• then real depreciation (change in REER) is

10% - (7% - 2%) = 5%• improvement in competitive position is 5%,

not the 10% suggested by the NEER

REER - definition

REER definitionHow to compute REER?

where, N stands for number of the competitor countries in the reference groupwi is the overall trade weight assigned to the currency iDi and Dj are the deflators for partner country i and country jei,j is the nominal exchange rate of country i in terms of currency of country j

REER - rationale

"REER often been found to be a statistically significant predictor of the incidence of economic crisis" •Balassa-Samuelson effect•Price and cost competitiveness•Thresholds +/-5% for EA, +/-11% non EA

REER for MIPREER computed by EC – DG ECFIN:Real – deflated by HICP, ULC, GDP deflator, export

prices, producer pricesEffective – based on bilateral trade (42, 37, EU, EA)ER – X rates vs. USD

Headline indicator 3y % change in REER vs. 42IC; HICP/CPI p.m. y-o-yAuxiliary indicators 3y % change in REER vs. EA; HICP/CPI 10y % change in ULC performance vs. EA based on REER's double export weights

REER - Data sourcesREERs – DG ECFIN; Price and Cost Competitiveness database

Components:•HICP/CPIEurostatInternational Financial Statistics (IMF IFS); OECD•Exchange RatesIMF IFS; ECB; ECFIN (before 1999)•Unit Labor Cost indexes Eurostat• Bilateral TradeIMF - Data on Trade (IMF DoT)•GDP; export pricesEurostat

REER – economic interpretationREER vs.42 Industrial Countries; HICP deflated (2000=100)

60

80

100

120

140

160

180

200

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Germany France UKUSA Japan TurkeyMexico Russia ChinaHongKong Korea Brazil

Copmetitiveness loss

Copmetitiveness gain

REER – Economic interpretationREER vs.EA HICP deflated (2008=100)

80

85

90

95

100

105

110

115

120

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Germany Ireland Greece SpainFrance Italy Portugal

REER – Economic interpretationULC based on REER vs.EA (2008=100)

60

70

80

90

100

110

120

130

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Germany Ireland Greece SpainFrance Italy Portugal

REER – statistical issues

Bilateralexchangerates

Trade basis

Trade weights

Choice of deflators

Coverage of trading partners

REER – statistical issues and actionsTotal trade - Current source - IMF; and Eurostat data? community vs. national approach (quasi transit)

…and why not trade in manufacturing?…or trade in services?

- Domestic supply (GDP, GVA…)- Frequency of weights updates - Chain linking method

REER – statistical issues and actionsCoverage of trading partnersECFIN: EA18; EU28; IC37; IC42; BIS: broad index – 61; ECB: EER-39Exchange ratesAverages of daily data; USD vs. EUR

DeflatorsPrice/cost competitivenessHICP/CPI, GDP deflators, Export prices, ULCT ULCM? PPI?

REER – conclusion

There is no single “all purpose” REER

•– Difficult trade-offs such as fit vs. quality•– Awareness of statistical engine is crucial

Export Market Shares

EMS – rationale

Three competitiveness indicator:REER CPI deflated – price competitiveness

Nominal ULC – cost competitiveness

Export Market Shares – broader view of competitiveness; export performance that cannot be explained by price developments

• geographical specialisation (trade openness)• sectoral specialisation • product quality and composition

EMS - rationale

• EMS is driven by:• numerator effect• denominator effect

+83% in 1994-2007• multilateral trade liberalisation • unilateral trade liberalisation of some emerging

countries (e.g. China, India and Brazil) • increased trade in services due to development of ICT

EMS – definition (1)•Headline indicator• 5y % change in share of total world exports• p.m. y-o-y

BoP data from Eurostat and IMFThreshold: -6%

•Auxiliary indicators • 5y % change in share of Advanced Economies exports

Eurostat and OECD data• 1y % change in EMS in volume

IMF data

EMS – economic interpretationGreece

30

40

50

60

70

80

90

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

bn EURSpain

200

225

250

275

300

325

350

375

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

bn EUR

Portugal

30

40

50

60

70

80

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

bn EUR

Cyprus

5

6

7

8

9

10

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

bn EUR

EMS – statistical issues

• Impact of ESA2010 implementation over 4pp EE, HR, LU, RO

0pp to 4pp BE, IE, LT, PT, SE, UK, AT

- 1pp to 0pp CZ, DK, IT, HU

-4pp to -1pp DE, FR, LV, FI

BPM6 data for BG, EL, ES, CY, MT, NL, PL, SI, SK are missing

EMS – economic interpretationExport Market Shares in 2013 (5 years % change)

LTLV

ROET

BGPL

SKMT

LUESIE

PTCZ

DENLFR

BEUK

SIAT

SEDKIT

HUCYELHR

FI

-30 -25 -20 -15 -10 -5 0 5 10 15 20 25 30

of world total

of advanced economies

EMS – economic interpretationEMS goods and services in 2013 (5 years % change)

LVLT

ROBG

ETSK

PLCY

ESPT

CZMT

NL

ELUK

BESI

ITDK

ATIE

HUSE

HRLU

FI

FR

DE

-40 -30 -20 -10 0 10 20 30

Goods

Services

Goods ServicesGoods and

Services

DE 8,4 6,6 8,0ES 1,7 3,2 2,0FR 3,1 5,2 3,5IT 2,8 2,4 2,7NL 3,0 2,5 2,9PL 1,1 0,9 1,1UK 2,6 6,5 3,3EU28 31,2 43,6 33,7

EMS – economic interpretationShare of exports going to EA

30

35

40

45

50

55

60

65

70

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Belgium Germany Ireland France Italy Portugal

EMS – statistical issuesExport Market Shares (y-o-y % change)

-10

-5

0

5

10

15

20

CY FI UK CZ MT SE IT IE AT NL DK DE FR EL LV SI EE HR BE SK HU ES BG PL PT LT LU RO

in volume

in current prices

Source: IMF for data in volume; Eurostat for data current prices

%

EMS – actions

• BPM6 – higher coverage in 2015

• Global Value Chains – mapping international trade• Input-output tables and gross trade• Tradables / non-tradables

Unit Labour Cost

ULC - rationale

• monitors developments in cost competitiveness across EU MSs

• measures the average cost of labour per unit of output

• rise in an economy’s NULC corresponds to a rise in labour costs that exceeds the increase in labour productivity

ULC – definition (1)

compensation of empl/no. of employees real GDP per person employed

based on Eurostat data from National Accounts

MIP indicator - percentage change over 3 years

Thresholds: +9% for euro-area • +12% non-euro-area

ULC =

ULC – definition (2)

3 auxiliary ULC indicators:Labour productivity – yoy % changeNULC – 10 years % change-Both based on Eurostat National Accounts

ULC based on REER for EA-Source: DG ECFIN

ULC – economic interpretationULC 2000=100

ULC – economic interpretationFrance

-2

0

2

4

6

8

10

12

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013labour cost labour productivity ULC

Germany

-6

-4

-2

0

2

4

6

8

10


Spain

-10

-5

0

5

10

15

20


Greece

-15

-10

-5

0

5

10

15

20

25


ULC – economic interpretationPoland

-10

-5

0

5

10

15

20

25

2005 2006 2007 2008 2009 2010 2011 2012 2013labour cost labour productivity ULC

Hungary

-10

0

10

20

30

40


Romania

-20

0

20

40

60

80

100


Bulgaria

0

10

20

30

40

50


ULC – economic interpretationWages per hour worked in manufacturing (in Euro)

ULC - actions• Quality Adjusted Labour Index• Total hours worked as input measure for analysing labour

productivity changes over time is not adequate = assumes each hour worked has the same quality

• Combining social surveys with NA data

House Price Index

Eurostat

• Headline indicator: year-on-year growth rate of the deflated HPI Eurostat consumption deflator – to reflect the value of house prices

relative to the whole consumption basket Indicative threshold: +6% Source: Eurostat (Price Statistics/NA)

• Auxiliary indicators: 3 years % change of nominal HPI Residential construction as % of GDP

• The scoreboard indicator is calculated using the formula: [((HPIt / DEFLt ) – (HPIt-1 / DEFLt-1)) / (HPIt-1 / DEFLt-1)]*100.

Short overview:

Eurostat

• Traditionally, large movements in real assets market were associated with economic crises

• Booms and busts in housing markets affect real economy through a variety of channels => important source of macroeconomic imbalances

• Real asset prices are correlated with:

Large movements in monetary and credit aggregates

Household consumption(wealth effect)

Inter-sectorial substitution effect

Economic rationale:

Eurostat

Issues

• Past periods are not entirely covered (some series rather short, starting in 2009)

• 13 Member States had at least one missing value as of 10 October 2014

• Data available for some past periods from other sources (NCB, ECB, BIS, OECD)

• For 9 Member States missing annual figures were backcasted by MIP Team (BG, EL, ES, CY, LT, LV, MT, AT, PL)

Eurostat

House prices grow faster than consumer spending

Source: Eurostat

2013: indicator flashes for 2

countries

Eurostat

House Prices(deflated)2008,2011 and 2013(index 2000 = 100, u.o.i.)

Source: AMR 2015

Private Sector Debtconsolidated

Eurostat

• Headline indicator: Expressed in % GDP (stock of liabilities at the end of the year) Instruments: debt securities and loans (F3+F4) Indicative threshold: +133% Source: Eurostat (NA --> FA)

• Auxiliary indicator: Private debt as % of GDP – non consolidated

• The scoreboard indicator is calculated using the formula: PSDt/GDPt * 100

• Measuring the debt of the non-financial private sectors (non-financial corporations plus households and NPISH)

Short overview

Eurostat

Short overview

• Consolidated data:

Describe each sector as a single economic entity

Reflect the amount of funds that the sector receives from other sectors

• Financial derivatives: excluded since 2013

Improve data comparability

Capture liabilities contracted as funding sources

• Pension schemes: not included because of the heterogeneity of social protection systems across Member States

Eurostat

• Excessively high private sector debt implies risks for growth and financial stability and increases the vulnerability to economic shocks

• Private debt developments allow for an assessment of the private sector vulnerability to changes in the business cycle, inflation and the interest rate

Economic rationale

• Implementation of the new methodological framework in September, ESA 2010

• Derogations were granted to Member States for transmission of data, mainly for earlier years and specific components

• Impact of new methodology

•

Methodological aspects

over 14pp BE, CY, LU

0pp to 14pp EL, LV, NL

-15pp to 0ppCZ, DK, DE, EE, ES, FR, HR, IT, LT, MT, PL, RO, SI, SK, FI, SE, UK

over -15pp BG, IE, HU, AT, PT

EurostatUnavailable data: CZ, UK Source: Eurostat

Eurostat

Private sector debt, % of GDP2013

Private Sector Credit Flow

Eurostat

• Headline indicator:

Expressed in % GDP

Flow counterpart of private sector debt (net, along the year)

Instruments: debt securities and loans (F3+F4)

Indicative threshold: +14%

Source: Eurostat (NA --> FA)

• The scoreboard indicator is calculated using the formula: PSCFt/GDPt * 100

• Consolidated data available in 2013

• Financial derivatives: excluded since 2013

Short overview:

Eurostat

• High credit flows – practice indicates it as one of the best indicators to predict crises incidence early on, both in emerging ad in advanced economies

• Large credit fluctuations are often associated with:

Potential banking system vulnerabilities

Boom and bust cycles in asset markets

House price bubbles

Current account imbalances

Economic rationale:




•


over 3pp BE, EE, LU

0pp to 3pp CZ, DK, EL, ES, FR, IT, LT, MT, NL, PL, PT, SI, UK

-2pp to 0pp BG, DE, IE, HR, LV, HU, RO, SK, FI, SE

over -2pp CY, AT

Unavailable data: CZ Source: Eurostat

General Government Debt

Eurostat


Expressed in % GDP


Source: Eurostat (GFS)

• The scoreboard indicator is calculated using the formula: GGDt/GDPt * 100

• The outstanding amount of the debt is calculated from the following ESA 2010 categories:

currency and deposits (AF.2) + debt securities (AF.3) + loans (AF.4)

Short overview:

Eurostat

Short overview:

• Maastricht Treaty definition: consolidated GGGD of the whole general government sector at nominal value, outstanding at the end of the year (EDP and SGP)

• GGD comprises central government, state government, local government, and social security funds

• Data for the general government sector are consolidated between sub-sectors at the national level

Eurostat

• Overall picture of the indebtedness of a Member State (important linkages between private sector debt and general government debt)

• A high level of general government debt increases the vulnerability of a Member State and weakens its room of manoeuvre to deal with crisis situations

Economic rationale:




•


over 4pp BE, IE, HR, AT

1pp to 4pp DK, CZ, FR, PT, FI, UK

0pp to 1pp DE, EE, EL, ES, IT, CY, LV, LU, HU, RO, SI, SK

-1pp to 0pp BG, LT, MT, NL, PL, SE

Source: Eurostat

General Government Debt, % of GDP2013

Total Financial Sector Liabilieties

Eurostat

• Headline indicator: Expressed as year-on-year growth rate Indicative threshold: +16.5% Source: Eurostat (NA --> FA)

• Auxiliary indicator: Financial sector leverage (debt-to-equity ratio)

• The instruments that are taken into account (ESA2010):• F.2 - Currency and deposits • F.3 - Debt securities • F.4 - Loans • F.5 - Equity and investment fund shares or units • F.6 - Insurance, pensions and standardised guarantee schemes • F.7 - Financial derivatives and employee stock options• F.8 - Other accounts payable

Short overview:

Eurostat

• Aims at measuring the evolution of the sum of all liabilities of the total financial sector to capture its linkages with the real economy

• A very broad measure of the expansion of the exposure to potential risks in the financial sector

• Good early-warning qualities

• Provides a fairly reliable basis for comparison among Member States

• The indicator is not specific to the business model of a specific subsector

Economic rationale:



• Impact of new methodology a large majority of Member States do not show any change for some the changes are very limited, mainly due to reclassification of units

into the financial corporation.

•


EurostatUnavailable data: CZ Source: Eurostat

Non-financial Corporate, Household and General Government Debt 2013 compared to 2008(shaded)% of GDP

Source: AMR 2015

Unemployment Rate

Eurostat


Number of unemployed persons as a percentage of the labour force based on International Labour Office (ILO) definition

3 year backward average


Source: Eurostat (LFS)

• Auxiliary indicators: several auxiliary indicators introduced in 2013

• The scoreboard indicator is calculated using the formula: [(UR)t + (UR)t-1 + (UR) t-2] /3

Short overview:

Eurostat

• Intended to monitor high and persistent rates of unemployment

• It might indicate a potential misallocation of resources and general lack of adjustment capacity in the economy

Economic rationale:

Source: Eurostat

2013: indicator flashes for 14

countries

Unemployment rate2008, 2012 and 2015 (forecast)

Source: AMR 2015

What about your answers?

Questionnaire

To what extend the indicator currently used in the context of MIP procedure explains imbalances in your country?

To what extend the indicator (in terms of its source, data transformations and data quality) appropriately measures macroeconomic imbalances?

Discussion Imbalances in your country• Does the current set of indicators used in the MIP

context measure properly the imbalances in your country?

• What are the imbalances in your country? • Are they similar to the ones observed in other EU

countries?• Do you have in your country a procedure/ a country

specific set of indicators to detect imbalances?• Is there any macroeconomic imbalance not detected by

the SB?

Discussion Imbalances in the European Union• Should we continue using the same scoreboard in the

next MIP rounds?• In your opinion, is there any new imbalance to arise?

Social, financial, economic… ?global or only(!) European, Euro area specific?

• Current SB, does it serve well as an early detector of potential imbalances? What is not covered and should be added?

• Is it better to have separate SB for EA? Or maybe country specific?

Discussion

Statistical soundness • What is the quality of underlined data used in the MIP

scoreboard?• Would you use for MIP SB data compiled outside ESS?• Composite indicator, would it be more descriptive?• … or should we rather go for the investigations of micro

data?

mip indicators fit for purpose presentation & discussion estp course luxembourg 10 december 2014...

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