Monetary Policy and Global Economy Insights from Bank of Finland Bulletin
Explore insights on monetary policy and global economic trends from the Bank of Finland Bulletin. Topics covered include liquidity regulation, fiscal multipliers, foreign trade statistics, the German job market, cyclical situations, global economic forecasts, share prices, bond markets, and data on the Chinese economy.
Download Presentation
Please find below an Image/Link to download the presentation.
The content on the website is provided AS IS for your information and personal use only. It may not be sold, licensed, or shared on other websites without obtaining consent from the author. Download presentation by click this link. If you encounter any issues during the download, it is possible that the publisher has removed the file from their server.
E N D
Presentation Transcript
Bank of Finland Bulletin 4/2013 Monetary policy and the global economy Governor Erkki Liikanen 17 September 2013 1 17.9.2013 Erkki Liikanen SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
Monetary policy and the global economy Articles and a BoF Online: Financial cycles, monetary policy and macroprudential policy in the euro area Hanna Freyst tter, Hanna Putkuri and Jukka Vauhkonen Liquidity regulation makes a comeback Karlo Kauko Fiscal multipliers revised Pasi Ikonen, Tuomas Saarenheimo and Matti Vir n Foreign trade statistics based on value added challenge the traditional picture of international trade Elisa Newby A perspective on the German job miracle : labour market outcomes and welfare after the labour market transformation Michaela Schm ller 2 17.9.2013 Erkki Liikanen SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
Presentation themes Cyclical situation and global economic outlook ECB s forward guidance reinforces accommodative monetary policy Banking union is an important structural reform 3 17.9.2013 Erkki Liikanen SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
The cyclical situation and the Bank of Finland s global economic forecast 4 17.9.2013 Erkki Liikanen SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
Share prices reflect differences in growth outlooks Advanced economies Euro Stoxx United States Japan Emerging economies Index, 4. Jan 2010 = 100 160 150 140 130 120 110 100 90 80 70 2010 Source: Bloomberg. 2011 2012 2013 5 17.9.2013 Erkki Liikanen SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
Bond markets tell a similar story Bond markets tell a similar story United States Japan Germany Italy Spain Finland Portugal % 18 16 14 12 10 8 6 4 2 0 2010 Yealdson 10-year gevernment bonds. Source: Reuters. 2011 2012 2013 6 17.9.2013 Erkki Liikanen SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
In China, data on real economy raises questions Citigroup economic Surprise Indices: real economy China Index, 0 = data as expected 150 100 50 ? 0 -50 -100 -150 2010 Source: Macrobond. 2011 2012 2013 7 17.9.2013 Erkki Liikanen SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
In China, data on real economy raises questions, euro area data better than expected Citigroup economic Surprise Indices: real economy Euro area China Index, 0 = data as expected 150 100 50 0 ? -50 -100 -150 2010 Source: Macrobond. 2011 2012 2013 8 17.9.2013 Erkki Liikanen SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
Industrial confidence improved, especially in euro area and United States Industrial confidence improved particularly in euro area and United States United States Euro area Japan China Balance 65 60 55 50 45 40 35 30 2008 Source: Bloomberg. 2009 2010 2011 2012 2013 9 17.9.2013 Erkki Liikanen SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
Euro area consumer confidence improved, especially in Italy and Spain Consumer confidence in the euro area Euro area High-rated countries excl. Germany Germany GIIPS countries Average = 0 30 20 10 0 -10 -20 -30 2000 2002 2004 2006 2008 2010 2012 Sources: European Commission and Bank of Finland. 10 17.9.2013 Erkki Liikanen SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
Public debt ratios still growing Public debt ratios still rising Euro area High rated countries* United Kingdom % of GDP United States GIIPS** Japan (right-hand scale) % of GDP 150 250 120 225 90 200 60 175 30 150 2008 2010 2012 * Germany, France, Netherlands, Belgium, Austria and Finland. ** Greece, Ireland, Italy, Portugal and Spain. The figures for 2012 are based on European Comission spring 2013 forecasts. Sources: European Commission, ECB and calculations by the Bank of Finland. 11 17.9.2013 Erkki Liikanen SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
Euro area unemployment still high Euro area unemployment still remarkably high United States Euro area Japan Finland Brazil % 14 12 10 8 6 4 2 2005 Brazilian figures have been seasonally adjusted at the Bank of Finland. Sources: Bloomberg, Eurostat and Statistics Finland. 2007 2009 2011 2013 12 17.9.2013 Erkki Liikanen SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
Fixed investment and world trade have slowed almost in tandem Fixed investment and world trade slowed almost hand-in-hand Fixed investment Global imports % change since previous observation 8 6 4 2 0 -2 -4 -6 -8 -10 -12 2005 The concept of fixed investment is slightly different in different countries and includes data from the United States, Japan, Germany and United Kingdom. Sources: BEA, CPB, Macrobond and calculations by the Bank of Finland. 2007 2009 2011 2013 13 17.9.2013 Erkki Liikanen SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
Slower growth in emerging economies Growth in emerging economies slowed more than expected Brazil India China Russia %, annual change 20 15 10 5 0 -5 -10 -15 2005 Source: Macrobond. 2007 2009 2011 2013 14 17.9.2013 Erkki Liikanen SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
Bank of Finland growth forecast: changes minor GDP United States 2012 2.8 2013f 1.6 1.8 -0.1 -0.4 1.6 1.1 7.5 8.0 1.8 3.4 3.0 3.2 2.6 4.0 2014f 2.5 2.4 1.2 1.1 1.5 1.7 7.0 7.0 3.3 3.4 3.7 3.6 5.1 5.7 2015f 2.9 2.8 1.6 1.5 1.2 1.0 7.0 7.0 3.2 3.0 3.8 3.8 5.9 6.3 EU20 -0.4 Japan 2.0 China 7.8 Russia 3.4 World 3.4 World trade 3.0 % change on previous year. Previous forecast beneath current one. EU20 = euro area, Sweden, Denmark and United Kingdom. 15 17.9.2013 Erkki Liikanen SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
Bank of Finland forecast: inflation still slow EU20 and US inflation slow; in Japan, period of deflation over EU20* United States Japan % 5 4 3 2 1 0 -1 -2 -3 2010 * Euro area, United Kingdom, Sweden and Denmark. Sources: National statistical authorities and calculations by the Bank of Finland. 2011 2012 2013 2014 2015 16 17.9.2013 Erkki Liikanen SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
Forecast risks Debt crisis flaring up again remains the greatest single risk, although now less likely Market data improved across a broad range Threat of renewed flare-up relates to implementation of programmes and their reforms; political risks hard to forecast Otherwise there are both on upside and downside risks US economy could perform better than forecast Strong undertone to both labour and housing markets Communication of monetary policy particularly important in present forecast period Euro area growth could be slower than forecast Delays to structural reforms could lead to slow productivity development and slower-than-forecast growth 17 17.9.2013 Erkki Liikanen SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
ECBs forward guidance reinforces accommodative monetary policy 18 17.9.2013 Erkki Liikanen SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
Era of historically low interest rates continues for fifth consecutive year Historically low level of key policy rates continues for the fifth year in a row Central bank interest rates United States Japan Eurosystem United Kingdom Sweden % 6 5 4 3 2 1 0 2008 Source: Bloomberg. 2009 2010 2011 2012 2013 19 17.9.2013 Erkki Liikanen SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
Repayment of central bank credits has reduced Eurosystem balance sheet Eurosystem balance sheet contracts Central bank balance sheets United States % of DGP Japan Eurosystem United Kingdom 50 45 40 35 30 25 20 15 10 5 0 2008 Sources: National statistical authorities, Eurostat and Bloomberg. 2009 2010 2011 2012 2013 20 17.9.2013 Erkki Liikanen SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
Monetary policy forward guidance Fed (December 2012): The exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6.5%. ECB (July 2013): The Governing council expects the key ECB interest rates will remain at present or lower levels for an extended period of time. BoE (August 2013): The MPC intends not to raise the Bank Rate above its current level of 0.5% .. at least until the headline measure of unemployment has fallen to a threshold of 7%. 21 17.9.2013 Erkki Liikanen SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
Forward guidance by the ECB Governing Council The ECB s monetary policy stance will remain accommodative as long as is necessary The Governing council expects the key ECB interest rates will remain at present or lower levels for an extended period of time. Euro area price pressures are expected to remain moderate over the medium term The short and medium-term inflation outlook remains moderate, with the real economy extensively weakened and the monetary economy subdued. 22 17.9.2013 Erkki Liikanen SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
Sluggish transmission of accommodative monetary policy High-rated countries*, bank loans GIIPS countries**, bank loans High-rated countries*, housing loans GIIPS countries**, housing loans 3-month Euribor % 7 6 5 4 3 2 1 0 -1 2003 * Germany, France, Netherlands, Belgium, Austria and Finland. ** Greece, Italy, Ireland, Portugal and Spain. New corporate and housing loan agreements with original interest fixed for at most 1 year. Sources: ECB and Bank of Finland calculations. 2005 2007 2009 2011 2013 23 17.9.2013 Erkki Liikanen SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
Tight financial conditions for SMEs hampering the economy Tight financing conditions for SMEs hampering the economy Margin of loans to SMEs* Margin of loans to large non-financial corporations** % 4 3 2 1 0 2003 * Average rates of new corporate loans for up to 1 million tied to at most 1 year's reference rates - 3-month Euribor. ** Average rates of new corporate loans for over 1 million tied to at most 1 year's reference rates - 3-month Euribor. 2005 2007 2009 2011 2013 Source: European Central Bank. 24 17.9.2013 Erkki Liikanen SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
Growth in loan defaults sustains uncertainty over the condition of banking balance sheets Belgium Greece Germany Ireland Spain Portugal France Euro area Italy % of loan stock 25 20 15 10 5 0 2000 2002 2004 2006 2008 2010 2012 Source: IMF. 25 17.9.2013 Erkki Liikanen SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
Banking union is an important structural reform 26 17.9.2013 Erkki Liikanen SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
Banking supervision and resolution institutions must be reinforced A single monetary policy, integrated financial markets and national supervision and resolution create a fragile package (a financial trilemma ). The mutual interdependence between a bank and its home state constitutes a fateful connection . Banking supervision and resolution requires better institutions than currently available. 27 17.9.2013 Erkki Liikanen SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
What should banking union comprise? Deposit guarantee Harmonisation Sectoral responsibility (funds) Banking supervision Effective, supranational and uniform supervision Resolution Harmonised tools Investor responsibility (bail-in) Sectoral responsibility (funds) No bank support When this is implemented with care the need for this is substantially Bank support (bail-out) Expensive, politically charged case-by-case political discretion (ESM) reduced! 28 17.9.2013 Erkki Liikanen SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
What is already agreed? How is the construction of banking union progressing? Directive on Deposit Guarantee Schemes (DGS) Harmonisation of national regulations Will still be national Single Resolution Mechanism (SRM) Commission proposal Sectoral responsibility (funds) Target for commencement 2015 Single Supervisory Mechanism (SSM) Attached to the ECB Commences work in 2014 Balance Sheet Assessment (BSA) ECB assessment Tackling major problems in asset quality Spring 2014 Bank Recovery and Resolution Directive (BRRD) Controlled resolution of failed banks Creditors responsibility (Bail-in) 2018 European Stability Mechanism (ESM) A new support tool Max. EUR 60 billion 29 17.9.2013 Erkki Liikanen SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
Authorities should foster the stability of the entire financial system entire financial system Pre-crisis Authorities should foster the stability of the Financial regulation and supervision Macroeconomic policies (monetary/fiscal/external) Price stability risk Economic activity Idiosyncratic risk and post-crisis Macroeconomic policies (monetary/fiscal/external) Financial regulation and supervision Macroprudential policy Financial stability Systemic risks Price stability risk Economic activity Idiosyncratic risk Source: IMF. 30 17.9.2013 Erkki Liikanen SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
In conclusion 31 17.9.2013 Erkki Liikanen SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
Towards a more stable euro area Member States Better rules Six-pack, two-pack, Balance of the entire national economy is vital Financial system Better rules Banking union Integrated application and interpretation Market discipline Countries are not identical Risks reflected in price Market discipline Banks are not identical Risks reflected in price 32 17.9.2013 Erkki Liikanen SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
Summary Cyclical situation and outlook for the global economy Good news: forecasts have not had to adjusted downwards Global economic outlook still subdued Monetary policy forward guidance The ECB Governing Council expects key ECB interest rates will remain at present or lower levels for an extended period of time. Assessment conditional on inflation outlook Banking union An important structural reform Strengthens confidence in the banks and their operational capacity 33 17.9.2013 Erkki Liikanen SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
Thank you! 34 17.9.2013 Erkki Liikanen SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
