BANCO DE ESPAÑA. economic bulletin

Transcription

1 BANCO DE ESPAÑA ecoomic bulleti July 1999

2 ecoomic bulleti July 1999 BANCO DE ESPAÑA

3 The Baco de España dissemiates its pricipal reports ad ecoomic idicators via INTERNET ad INFOVÍA.PLUS at: ISSN: Depósito legal: M Impreta del Baco de España BANCO DE ESPAÑA / ECONOMIC BULLETIN / JULY 199

4 Covetios used M1 M M3 ALP ALPF Moey supply = Notes ad cois held by the public + sight deposits. M1 + savigs deposits. M + time deposits. Liquid assets held by the public = M3 + other liquid assets. ALP + fixed-icome mutual fuds. b Billios (1 9 ). m a p pp Millios. Projectio. After a date [Jauary (p)], this meas that all the related figures are provisioal; after a figure, oly said figure is provisioal. Percetage poits. Aual ( 197 ) or quarterly data with this symbol are averages of the mothly data of the year or quarter; series of mothly, te-day or weekly data are averages of the daily data for such periods.... Not available. Nil, o-existece of the evet cosidered or isigificace of chages whe expressed as rates of growth.» Less tha half of the last digit idicated i the series. * Series of seasoally adjusted data. Abbreviatios AIAF BIS CNE CNMV CPI DM EAGGF ECB ECOFIN EDP EMU EPA Associatio of Securities Dealers Bak for Iteratioal Settlemets Spaish Natioal Accouts Natioal Securities Market Commissio Cosumer price idex Deutsche mark Europea Agricultural Guidace ad Guaratee Fud Europea Cetral Bak EU Coucil (Ecoomic ad Fiacial Affairs) Excessive Deficit Procedure Ecoomic ad Moetary Uio Official Labour Force Survey BANCO DE ESPAÑA / ECONOMIC BULLETIN / JULY 199

5 ERM Exchage Rate Mechaism ERM II New Exchage Rate Mechaism for currecies of EU Member States outside the euro area ESA 79 Europea System of Itegrated Ecoomic Accouts (1979) ESA 9 Europea System of Natioal ad Regioal Accouts (199) ESCB Europea System of Cetral Baks ESP Pesetas EU Europea Uio EU-1 The fiftee curret EU Member States EUR Euro EUROSTAT Statistical Office of the Europea Commuity FIAMMs Moey-market fuds FIMs Securities fuds FUNCAS Fudació de Cajas de Ahorros GDP Gross Domestic Product GDP cp GDP at costat prices Ge. govt. Geeral govermet GNP Gross Natioal Product GVA Gross Value Added G7 Group of Seve HICP Harmoised idex of cosumer prices HF Households ad firms H1/H First/secod half IMF Iteratioal Moetary Fud INE Natioal Statistics Office INVERCO Asociació de Istitucioes de Iversió Colectiva y Fodos de Pesioes IPI Idustrial Productio Idex MEFF Fiacial Futures ad Optios Market MFIs Moetary fiacial istitutios MINER Miistry of Idustry ad Eergy MMFs Moey-market fuds NBER Natioal Bureau of Ecoomic Research OECD Orgaisatio for Ecoomic Co-operatio ad Developmet PPI Producer price idex R + D Research ad developmet RENFE Natioal railway compay SEPI State idustrial holdig compay SGP Stability ad Growth Pact SIB Stock-exchage itercoectio system TARGET Tras-Europea Automated Real-Time Gross Settlemet Express Trasfer system ULCs Uit labour costs VAT Value Added Tax WB World Bak BANCO DE ESPAÑA / ECONOMIC BULLETIN / JULY 199

6 Cotets Quarterly report o the Spaish ecoomy Overview The exteral eviromet of the euro area The euro area ad the moetary policy of the Europea Cetral Bak The Spaish ecoomy The fiacial markets ad flows of the Spaish ecoomy Results of o-fiacial firms i the first quarter of Fiacial regulatio: secod quarter of Ecoomic idicators Articles i Eglish ad publicatios of the Baco de España Page BANCO DE ESPAÑA / ECONOMIC BULLETIN / JULY

7 Quarterly report o the Spaish ecoomy 1. Overview INE has recetly released the first Spaish Natioal Accouts data (base year 199, CNE 9), draw up usig ESA 9 methodology. These figures iclude chages of both a statistical ad coceptual ature, the former beig quatitatively more sigificat owig, amog other factors, to the use of ew sources ad estimatio methods, ad the latter derived from the applicatio of a methodology which broades the defiitio of the cocept of ecoomic activity (see Box 1). With the release of the ew series, INE has laid out its provisioal estimate for the first quarter of Compared with a year earlier, real GDP i this period ra at 3., i terms of the tred-cycle series, extedig the moderate slowdow apparet i the 199 figures (see Chart 1). The rate of icrease of atioal demad heighteed to.7, while the egative cotributio of et exteral demad reached a ew peak, subtractig two percetage poits from the growth of real output. The key features of the mai compoets of fial demad are as follows: the tedecy of fial household cosumer spedig ad capital ivestmet to stabilise at very high year-o-year rates; the resiliece of ivestmet i costructio ad the otable weakess of goods exports, despite the progressive growth of the tourism sector; ad the respose by imports to the firmess of demad, with a slight icrease i their growth rate. There is o sigificat chage discerible i the patters see last year i the various productive braches, a fresh loss of mometum beig witessed i o-eergy idustry. Durig the first moths followig the start of Ecoomic ad Moetary Uio (EMU), the Spaish ecoomy cotiued to show remarkable buoyacy (amog the highest i the euro area) ad job-creatio capacity. The patter of growth resides to a icreasigly greater extet o domestic demad, while exports have bee impacted by the slowdow o iteratioal markets. The exteral deficit thus correspods to the reductio of the ecoomy s private-sector fiacig capacity whereas, coversely, public fiaces have improved appreciably, with a further reductio i borrowig requiremets ad debt. There has bee a sizeable icrease i labour costs i the idustrial ad services sectors, despite havig moderated durig the first quarter of the year. Ad this, combied with the ogoig recovery i itermediate iput prices o iteratioal markets (the rise i eergy prices is already feedig through to the cosumer price idex), might shape a settig less coducive to sustaiig the ecoomy s stability ad competitiveess. The secod quarter of 1999 has see cofirmatio of the improved ecoomic situatio of BANCO DE ESPAÑA / ECONOMIC BULLETIN / JULY

8 QUARTERLY REPORT ON THE SPANISH ECONOMY Gross domestic product CHART 1 more placed the iflatio rate for the area as a whole below 1 i Jue. 3 EURO AREA (b) SPAIN (a) 3 Moetary ad fiacial coditios i the euro area geerally remaied accommodatig durig the secod quarter of 1999, give weak growth prospects without sigificat risks for price stability. Agaist this backgroud, the Goverig Coucil of the ECB decided at its meetig o th April to cut the iterest rate o its mai refiacig operatios by basis poits, to.. This gave rise to reductios i iterest rates alog the etire yield curve i April. 1 Sources: ECB, Istituto Nacioal de Estadística ad Baco de España. ( a ) No-cetred aual rates of chage calculated o the basis of the tred-cycle series. (b) No-cetred aual rates of chages calculated o the basis of the seasoally adjusted series. the exteral eviromet of the euro area. Sigificat cotributig factors here have bee the cotiuatio of a sustaied rate of ecoomic activity without iflatioary pressures i the Uited States, the gradual recovery i the level of output i the Uited Kigdom ad more favourable figures from Japa. As regards the emergig market ecoomies, the ed of the crisis i the south-east Asia coutries ad the improvemet i the Russia ecoomic situatio reiforce the recovery i the exteral settig. However, some of the mai Lati-America coutries cotiue to be affected by the cosequeces of the Brazilia crisis, despite the fact this coutry has performed much better tha expected. The ecoomic situatio of the euro area has likewise improved i the period to date i O the data available, it may be asserted that the slowdow i activity i the area reached a trough at the ed of 199 ad that a moderate expasio has bee uder way sice the early moths of the curret year, with cosumptio ad ivestmet ruig at sustaied rates. The recovery already perceptible o foreig markets will udoubtedly be oe of the key factors for the cosolidatio of this process. O the prices frot, cotiuig moderate growth rates have bee the geeral orm, despite the fact that the rise i oil prices o iteratioal markets is passig through to eergy goods prices, the growth rates of which have tured positive. Noetheless, the slowdow i the prices of other HICP compoets has oce 1 Subsequetly, the improvemet i the ecoomic outlook for the euro area as from May, uderpied partly by a more optimistic iteratioal settig, prompted upward movemets i euro-area iterest rates which were more itese i the loger-dated terms. As a result, the iterest rates o log-term debt stood at higher levels tha those at ed-199, ad the rates o - ad 1-moth iterbak deposits regaied the levels reached before the reductio i the Eurosystem s bechmark rates i April. Durig the secod quarter the ogoig depreciatio of the euro agaist the dollar cotiued, although there was a turaroud as from mid-july as ecoomic prospects for the euro area improved ad firmed. The progressive pick-up i ecoomic activity has also bee reflected i the euroarea moetary ad credit aggregates which, o iformatio to May, have bee relatively expasioary. Specifically, M3, the Eurosystem s referece moetary aggregate, grew slightly over i April ad May compared with a year earlier, while M1, icorporatig the most liquid assets, ra at over 11 year-o-year. Likewise, fiacig to the private sector was highly buoyat, postig a growth rate of 1. i the twelve moths to May. The iformatio available at the time of this report goig to press shows that the high growth rates of the Spaish ecoomy cotiued to moderate i the secod quarter of the year. The atioal demad idicators geerally poit to a stabilisig of or reductio i such growth rates. The sigs are clearest i the case of capital ivestmet; though it cotiues to evidece great buoyacy, it is oetheless affected by the relative slackess apparet i maufacturig idustry, give the persistetly ufavourable results i foreig sales. The favourable expectatios about developmets i foreig markets have ot yet passed through to goods exports, the April figures for which are cosiderably adverse (1). The chages apparet i the itera- (1) The May figures were released after the cut-off date for this report, but do ot alter this assessmet. Imports remai buoyat. 1 BANCO DE ESPAÑA / ECONOMIC BULLETIN / JULY 1999

9 QUARTERLY REPORT ON THE SPANISH ECONOMY Mai chages icorporated ito Spaish Natioal Accouts (base year 199) BOX 1 The Spaish Natioal Accouts series (base year 199, CNE 9) recetly released by INE have two importat ew features: the re-basig of the accouts ad the implemetatio of the ew ESA 9 (Europea System of Accouts 199) methodology. The aim of both these features is to ehace adaptatio of the Natioal Accouts to chages i the actual ecoomic situatio. Differeces betwee the CNE 9 ad CNE estimates are due to two types of factor (1), of a statistical ad coceptual ature. Statistical chages arise with all re-basig processes ad are the outcome of the use ad adaptatio of ew statistical sources ad of the applicatio of ew estimatio methods. The coceptual chages i this case are liked to the applicatio of the ew Natioal Accouts methodology. INE has provided a quatitative estimate of the impact of the statistical ad coceptual chages o the level of GDP ad of the mai demad compoets at curret prices for the year 199 (see adjoiig chart). The statistical chages have bee of greater sigificace i quatitative terms, while the coceptual chages have maily affected gross capital formatio, owig to the wideig of the cocept. Overall, the level of GDP has icreased. i the base year. Compariso betwee CNE 9 ad CNE figures DIFFERENCES IN GDP AND DEMAND-AGGREGATE LEVELS, 199 (a) GDP (b) Statistical Coceptual chage chages chages Fial cosumptio expediture Gross fixed capital formatio Exports of goods ad services... Imports of goods ad services.. 1. GDP CNE CNE 9 As regards GDP developmets i the period , i costat pesetas, the ew CNE has etailed a mior upward revisio of growth rates i 1997 ad 199 (ad a dowward oe i 199). From a quarterly stadpoit, oe of the ew features of CNE 9 is the presetatio of series of the mai aggregates i terms of gross seasoally adjusted data, i additio to the tred-cycle data, which were already published previously. Compariso of the quarterly profiles betwee CNE 9 ad CNE, i terms of data at costat prices ad i terms of tred-cycle, is give i the adjoiig Chart. It ca be see that the cotributio of atioal demad heightes i the ew estimates (owig to the progressive acceleratio of ivestmet, while spedig o fial cosumptio is o a risig tred util the last quarter of 199) ad the cotributio of et exteral demad is ultimately more egative at ed-199, sice the slowdow i imports durig the year is less marked. 3 1 DOMESTIC DEMAND (b) AND CONTRIBUTION OF NET EXTERNAL DEMAND DOMESTIC DEMAND (CNE ) DOMESTIC DEMAND (CNE 9) 3 1 The mai additio i the labour market area is the estimatio of various employmet cocepts, whereas uder the previous system oly equivalet employmet was estimated, which etails measurig jobs i homogeeous terms. Uder CNE 9, the set of variables relatig to the use of the labour factor are as follows: employmet (icludig all people wage-earers ad self-employed - egaged i productive activity); jobs (umber of cotracts, whether explicit or implicit, betwee a idividual ad a residet istitutioal uit for egagig i work i exchage for remueratio); hours worked (overall figure of hours actually worked by employees i the ecoomy); ad full-timeequivalet jobs (total hours worked divided by the average fulltime workig day). So far, INE has oly released data o jobs ad full-time-equivalet jobs, the latter beig the variable comparable with the former Natioal Accouts employmet variable. The ew iformatio o employmet has meat a upward revisio of the level per the CNE figures: compariso betwee these ad the ew series of full-time-equivalet jobs reveals a average differece, for the period , of 3, jobs. - 3 CONTR. EXTERNAL DEMAND (CNE ) CONTR. EXTERNAL DEMAND (CNE 9) EMPLOYMENT (c) CNE CNE 9-3 With regard to the measuremet of GDP from the icome stadpoit, the most sigificat chages are the loss of the share of the surplus i omial GDP ad the icrease i the weight of employee compesatio, which is largely due to the broadeig of the cocept of wage-earer i the ew accouts. Further, the share i GDP of taxes et of subsidies has also icreased, owig largely to a stricter defiitio of subsidies. The rates of chage of employee compesatio are similar to the previous oes, while the surplus has grow more sharply tha with the CNE data, except i 199, whe there was greater growth both of employee compesatio ad of average employee compesatio uder the ew accouts. (1) See Cotabilidad Nacioal de España 199, INE, Bo - letí Trimestral de Coyutura, Jue Source: Istituto Nacioal de Estadística. (a) As percetage of CNE 9 over CNE. GDP at curret prices. ( b ) Percetage chage o same quarter a year earlier, calculated o the basis of costat-price series. For the CNE 9 series, the rates of chage are based o the tred-cycle compoet. (c) Percetage chage o same quarter a year earlier. For the CNE 9 series, the rates of chage are based o the tredcycle compoet. 1 BANCO DE ESPAÑA / ECONOMIC BULLETIN / JULY

10 QUARTERLY REPORT ON THE SPANISH ECONOMY CHART CHART Cofidece idicators Fiacial idicators of the Spaish ecoomy 1 SPAIN BUSINESS BANKS LENDING RATE INTEREST RATES (a) ECB REFERENCE RATE YEAR DEBT DOMESTIC YIELD CONSUMER ONE-YEAR INTERBANK RATE BANKS DEPOSIT RATE EURO AREA 1 1 BUSINESS 1 LIQUID FINANCIAL ASSETS AND FINANCING OF NON-FINANCIAL FIRMS AND HOUSEHOLDS (b) CONSUMER -1 1 FINANCING LFA Source: Europea Commissio. CHART 3 1 NET FINANCIAL SAVING (c) OF GDP OF GDP 1 Harmoised idices of cosumer prices.. NATION HOUSEHOLDS FIRMS -. EU SPAIN. - GENERAL GOVERNMENT S o u r c e s : Eurostat ad Europea Cetral Bak.. Source: Baco de España. (a) Series calculated as daily data averages. ( b ) Fiacig icludes bak loas exteded by residet ad o-residet credit istitutios ad fixed-icome secur i t i e s. (c) Cumulative data of four quarters. 1 BANCO DE ESPAÑA / ECONOMIC BULLETIN / JULY 1999

11 QUARTERLY REPORT ON THE SPANISH ECONOMY tioal outlook will o doubt ultimately affect exports ad cotribute to improvig busiess expectatios. Turig to household spedig, some idicators have slipped back slightly, i step with cosumer cofidece levels (see Chart ). However, other expediture segmets, especially car sales, remai very resiliet, as do house purchases. As a result, ivestmet i the costructio sector has perhaps bee the sole demad compoet whose yearo-year growth rate has ot falle durig the secod quarter. If these treds hold, the year-o-year growth rates of atioal demad for the secod quarter of 1999, measured o the basis of the tred-cycle series, could be aroud.. Imports, for their part, cotiue to show otable vigour, i step with that of demad. Accordigly, eve if the slowdow i exports were to touch bottom (takig ito accout the excellet tourism reveue results), et exteral demad would oce agai subtract about two percetage poits from real GDP growth, leavig its growth rate at approximately 3.. The tred of the employmet idicators i the secod quarter is i lie with the behaviour of the various productive braches, ad a tedecy towards deceleratio is also apparet. The case of employee compesatio is somewhat similar ad this, combied with the slight rise i productivity, is slackeig the growth rate of uit labour costs, which remais cosiderably higher tha that i other euro-area coutries. The greater relative pressure exerted by costs, agaist a backgroud of strog demad growth, is reflected i the iflatio differetial betwee the Spaish ecoomy ad the euro area as a whole, measured o the basis of the respective HICPs (see Chart 3). The spread i the services compoet has stabilised at almost two poits so far i 1999 (it was oe poit i 199), ad is wideig cosiderably i the case of goods, where it stads above oe poit after havig bee virtually zero over the two previous years. Regardig the State deficit figures, the results i the first half of the year have bee very favourable. The rate of icrease of expediture, oce adjusted for the factors distortig its compariso, is i lie with the targets set, while the growth of reveue is above budget. Lastly, from the fiacial stadpoit, the secod quarter has bee marked by a gradual pass-through of the cuts i moetary policy iterest rates to bak ledig ad borrowig iterest rates i Spai which, especially i the case of ledig, have falle to very low levels. Coversely, log-term yields have rise sigificatly, i step with the situatio of the area as a whole, whereby the slope of the yield curve has icreased. The relative easiess of bak fiacig coditios i Spai has cotiued to ecourage households ad o-fiacial firms to take o debt, which has grow at a high rate, while it has detracted from the attractiveess of liquid fiacial assets i favour of other higheryieldig ad riskier assets ad of real assets. Specifically, fiacig to households ad firms i the form of bak credit ad fixed-icome securities retaied a rate of expasio of 1 year-o-year i the secod quarter, similar to that recorded at ed-199 ad sigificatly higher tha the growth rate of omial expediture i the ecoomy (see Chart ). Liquid fiacial assets held by households ad firms posted a year-o-year rate of less tha at the ed of the secod quarter, more i keepig with ecoomic activity. O the iformatio for the first quarter from the fiacial accouts, et household fiacial savig ca be see to have held o the slowig course begu i 199, which is cosistet with the strog growth of bak credit to this sector. This did ot affect the atio s et fiacial savig isofar as geeral govermet savig icreased ad corporate savig held costat. BANCO DE ESPAÑA / ECONOMIC BULLETIN / JULY

12 QUARTERLY REPORT ON THE SPANISH ECONOMY. The exteral eviromet of the euro area The improvemet i the worldwide ecoomic situatio iitially discerible i the opeig moths of the year progressively firmed durig the secod quarter of Amog the idustrialised coutries, highlights icluded the prologatio of the sustaied growth phase i the Uited States, the start of a fresh pick-up i the Uited Kigdom ad the uexpected icrease i GDP i Japa i the first quarter. I tur, iflatio has held at low levels, despite the fact that oil prices o iteratioal markets have cotiued o a upward course sice February. As regards the emergig market ecoomies, evets so far i 1999 have cofirmed the ed of the crisis i the south-east Asia coutries, some of which, such as Korea, are already postig positive growth rates. Likewise, the ecoomic situatio i Russia has show sigs of improvig i recet moths. I Lati America, the mai coditioig factor of the ecoomic situatio of the area cotiues to be the fall-out from the Brazilia crisis. That said, its effects o iteratioal fiacial markets were less tha expected ad its cosequeces have bee cofied predomiatly to the Mercosur coutries. Agaist this backgroud, the ecoomic recessio affectig the Brazilia ecoomy is provig less itese tha forecast, iflatio has rise very moderately followig the devaluatio of the real ad the fiscal adjustmet policies implemeted suggest that the fiscal targets set for 1999 will be met. Argetia is the Lati America coutry that is beig most affected by the Brazilia crisis owig to their close trade liks (3 of Argetie exports are to Brazil). Noetheless, isofar as the recovery i Brazil firms i the comig moths, the kock-o effect this will exert o the area i geeral ad o the Argetie ecoomy i particular could improve the ecoomic outlook for the area. The US ecoomy has cotiued growig at a sustaied pace durig the secod quarter, at a similar year-o-year rate to the previous three moths ( ). O the idicators available, the compositio of growth would have bee similar to that of the first quarter, with highly buoyat domestic demad (see Chart ) ad a egative cotributio of the exteral sector. The loss i competitiveess etailed by the strog appreciatio of the dollar (7 betwee Jauary ad July i real effective terms agaist the developed coutries) alog with the slackess of foreig markets accouts for the ufavourable performace of exports. Ad this, combied with a greater demad for imports, is traslatig ito a ogoig wideig of the trade ad curretaccout deficit sice the begiig of the year. Thus, the egative trade balace built up i the 1 BANCO DE ESPAÑA / ECONOMIC BULLETIN / JULY 1999

13 QUARTERLY REPORT ON THE SPANISH ECONOMY Mai macroecoomic idicators Percetage chage o previous year UNITED KINGDOM UNITED STATES JAPAN UNITED STATES EURO AREA GROSS DOMESTIC PRODUCT EURO AREA DOMESTIC DEMAND (a) UNITED KINGDOM CONSUMER PRICES UNITED KINGDOM UNEMPLOYMENT RATE (a) EURO AREA JAPAN EURO AREA JAPAN UNITED STATES CHART first five moths of the year was 3 higher tha for the same period a year earlier. The uemploymet rate held at betwee. ad.3 of the labour force i the secod quarter. Despite surgig activity, cosumer prices cotiue to grow at very moderate rates. The rise i iflatio i April (to.3 o 1 moths earlier), essetially as a result of the icrease i the prices of eergy products, did ot cotiue i the followig two moths. Thus, i Jue, the 1-moth growth rate of prices was, a rate which rises to.1 if eergy ad food prices are excluded from the geeral idex. I Japa, GDP grew.1 i year-o-year terms i the first quarter of 1999 (1.9 o the previous quarter), clearly above forecast. This result, which broke with the fallig trajectory of Japaese output sice the fourth quarter of 1997, was associated with a appreciable ad uexpected improvemet i domestic demad, both o the side of private cosumptio (which icreased. year-o-year) ad of private ivestmet (the rate of declie of which was substatially lower tha i previous quarters). The idicators of activity available for the secod quarter do ot yet offer a clear ad robust sigal that the ecoomic recovery has cotiued. But the previous rate of declie of idustrial productio has moderated, costructio appears to have touched bottom ad the latest quarterly survey of busiess expectatios shows a improvemet as far as the major maufacturig firms are cocered. The uemploymet rate dipped to. i May, although the level of employmet has cotiued to fall. Cosumer prices ad producer prices have cotiued to grow at egative 1-moth rates (. ad 3., respectively), deotig the persistece of deflatioary pressures. I the exteral sector, the loss of competitiveess etailed by the appreciatio of the ye i the secod half of 199 ( i real terms agaist the idustrialised coutries betwee August 199 ad Jauary 1999) is beig reflected i a sigificat reductio i the Japaese trade ad curret-accout surpluses. S o u r c e s : Baco de España, atioal statistics ad Euros t a t. (a) UNITED STATES JAPAN UNITED KINGDOM As a percetage of the labour force. Turig to the EU ecoomies ot curretly members of EMU, metio may be made of the moderate ad gradual path of ecoomic recovery i the Uited Kigdom, a patter perceptible i the positive course of the latest idicators of activity available. I the labour market, uemploymet has falle to. of the labour force i Jue. Moreover, this has bee accompaied by a clear moderatio of iflatio: the 1-moth icrease i retail prices, excludig mortgage iterest paymets, was. i Jue (.7 i March), below the. target set. The favourable course of wages ad the apprecia- BANCO DE ESPAÑA / ECONOMIC BULLETIN / JULY

14 QUARTERLY REPORT ON THE SPANISH ECONOMY CHART CHART 7 Iterest rates Exchage rates ad curret-accout balaces SHORT-TERM (a) UNITED KINGDOM 11 1 EXCHANGE RATES AGAINST THE DOLLAR (a) (Ja = 1) STERLING YEN 11 1 UNITED STATES EURO AREA 9 9 EURO JAPAN LONG-TERM (b) 1 NOMINAL EFFECTIVE EXCHANGE RATES AGAINST THE DEVELOPED COUNTRIES (a) (Ja = 1) DOLLAR 1 UNITED KINGDOM 11 STERLING 11 UNITED STATES 1 YEN 1 EURO AREA 9 EURO 9 JAPAN CPI-BASED REAL EFFECTIVE EXCHANGE RATES AGAINST THE DEVELOPED COUNTRIES (a) (Ja = 1) DOLLAR 1 Source: Baco de España. ( a ) Three-moth iterbak market iterest rate. Euro area: util December 199, weighted average of the 11 euro area coutries. I 1999, three-moth EURIBOR. ( b ) Te-year govermet bod yields. Euro area: weighted average of the 11 euro area coutries STERLING EURO YEN tio of sterlig are amog the factors that explai the fall i UK iflatio. With respect to ecoomic policies, fiscal cosolidatio has cotiued i the mai Aglo- Saxo ecoomies. I the Uited States, the federal surplus i May stood at $ billio ad it is foresee that the positive balace at the ed of the curret fiscal year will be slightly higher tha programmed; o differet forecasts, geeral govermet et ledig would be betwee 1 ad of GDP. I the Uited Kigdom, the etrechmet of a higher growth rate i the comig moths might help hold the budget deficit below 1 of GDP i O the cotrary, i Japa, public borrowig requiremets for the curret year might, i priciple, stad at aroud of GDP, although the possibility of a ew expasioary fiscal package beig itroduced i the last quarter of the year might ultimately raise this figure. - - JAPAN CURRENT-ACCOUNT BALANCE AS OF GDP UNITED STATES UNITED KINGDOM Sources: Baco de España, BIS ad atioal statistics. (a) A fall i the idex deotes a depreciatio of the currecy agaist the dollar or the rest of the currecies makig up the groupig, ad vice-versa. (b) The euro lie is the depictio, to 1999, of a approximate idicator devised by the BIS o the basis of the effective exchage rates of the euro area coutries BANCO DE ESPAÑA / ECONOMIC BULLETIN / JULY 1999

15 QUARTERLY REPORT ON THE SPANISH ECONOMY As regards moetary policy, the US Federal Reserve raised its federal fuds rate by basis poits to o 3th Jue. This measure was uveiled as a meas of forestallig future iflatioary pressures, give the high ecoomic growth rate, the low level of the uemploymet rate ad the rise i the price of eergy commodities. Noetheless, the icrease i the official iterest-rate was accompaied by the aoucemet by the Federal Reserve that it would maitai a eutral bias i the implemetatio of moetary policy i the comig moths. That has cotributed to moderatig expectatios of additioal rate icreases i the immediate future. By cotrast, the Bak of Eglad oce more cut its base rate o Jue 1th (for the fourth time sice the start of 1999) by oe quarter of a poit, to, i view of the slowdow i the iflatio rate so far this year. Fially, i Japa, the moetary authorities have kept official itervetio rates stable ad at levels close to zero. Turig to the moey ad fiacial markets, three-moth iterest rates i the Uited States edged up i the period betwee April ad July (see Chart ). The icrease i log-term iterest rates over this same period was o a greater scale, risig to stad at aroud as from mid-jue. I the Uited Kigdom, the fall i short-term rates which followed a fresh cut i the official iterest rate was accompaied by a slight icrease i 1-year rates, which stad at over. Lastly, i Japa, while the shorterdated iterest rates remaied uchaged ad close to zero, 1-year govermet bod yields rose oce more to 1.7. O the securities markets, there was a geeralised upward tred which was somewhat more otable i Japa s case further to its improved ecoomic results. The behaviour of stock market idices has bee somewhat more volatile i the Uited States. Ideed, sice mid-may, the upward tred has bee checked, although the idices are still at very high levels. Fially, o the foreig exchage markets, the dollar has cotiued risig agaist the mai currecies (see Chart 7). The dollar appreciated by agaist the euro betwee April ad July (1 sice the start of the year). However, sice mid-july, the euro has teded to regai groud agaist the dollar, whereby i the last fortight of July it stood at above 1. dollars per euro. I relatio to the ye, the dollar appreciated by somewhat over 1 betwee April ad July. Noetheless, the stregth of the Japaese currecy oce the icrease i GDP i the first quarter was disclosed has prompted itervetios o the foreig exchage markets. These ivolved ot oly the Bak of Japa but, o occasios, also the ECB ad the Federal Reserve, who sought to prevet a additioal worseig i competitiveess from weakeig the possibility of ecoomic recovery i Japa. Lastly, betwee April ad July, the dollar appreciated by almost 3 agaist sterlig. The appreciatio of the dollar i this period agaist the developed coutries was i omial effective terms. BANCO DE ESPAÑA / ECONOMIC BULLETIN / JULY

16 QUARTERLY REPORT ON THE SPANISH ECONOMY 3. The euro area ad the moetary policy of the Europea Cetral Bak 3.1. Ecoomic developmets O the iformatio available, ecoomic activity i the euro area i the first half of 1999 has progressively recovered followig the slowdow see durig 199. This performace is i respose to the gradual improvemet i the area s mai export markets, especially if it is bore i mid that the crisis of the emergig market ecoomies was oe of the mai reasos for the reductio i the rate of output of the euro-area coutries. I the secod quarter, the uemploymet rate for the area as a whole fell very slightly ad iflatio stood oce more below 1 i Jue, despite the upward bias iduced by the rise i eergy prices. The Natioal Accouts figures for the first quarter of 1999 () suggest that ecoomic activity i the area uderwet a turaroud i this period. Thus, although the year-o-year growth of GDP (1. ) was somewhat lower tha the related rate i the previous quarter ( ), the quarter-o-quarter rate of chage (. ) was two-teths of a poit up o that of the fourth quarter of 199, thereby turig aroud the dowtred evidet i these quarterly rates sice ed The rise i domestic demad was the drivig force behid growth, ad all its compoets posted sigificat icreases. I yearo-year terms, private cosumptio grew by. ad gross fixed capital formatio by 3.. The chage i stockbuildig, after havig reached very high levels i 199, subtracted. percetage poits from GDP growth (see Chart ). Fially, the cotributio of et exteral demad remaied egative, albeit i a lesser proportio tha i previous quarters. Exports grew by. compared with a year earlier, while imports icreased by.3 (1.3 ad. i the previous quarter, respectively). As regards the idividual results for the euro-area ecoomies, the degree of diachroy amog the six coutries for which iformatio is available lesseed i the first quarter of 1999: the highest atioal GDP year-o-year rate was that of Filad (3.9 ), while the lowest was that of Germay (. ). Greater covergece has bee achieved owig, above all, to the recovery i those ecoomies, such as Germay ad Italy, whose level of output had bee markedly impacted by the iteratioal crisis, give its greater degree of exposure to developmets o foreig markets. Noetheless, the icrease i the GDP of these two coutries i the ( ) The estimate of GDP for this quarter combies mixed methodological criteria accordig to the coutries ivolved. Most have calculated their figures i accordace with ESA 9 criteria while others have cotiued to take ESA 79 as their basis. 1 BANCO DE ESPAÑA / ECONOMIC BULLETIN / JULY 1999

17 QUARTERLY REPORT ON THE SPANISH ECONOMY Euro area. Qualitative idicators TABLE Q 199 Q3 Q Q Q JAN FEB MAR 1999 APR MAY JUN MONTHLY SURVEY (NET REPLIES): Idustrial cofidece Order books Foreig orders Stocks Costructiosector cofidece Order books Retailer cofidece Cosumer cofidece Ecoomic setimet idex (19 = 1) QUARTERLY SURVEY: Capacity utilisatio () Source: Europea Commissio. first quarter remaied below that of the average for the area. The idicators of activity i the euro area durig the secod quarter ted to corroborate the fact a recovery is takig place. The areawide ecoomic setimet idicator draw up by the Europea Commissio, though it fell slightly i average terms i the secod quarter, has teded to stabilise ad is holdig at historically high levels. However, a certai dichotomy persists betwee busiess ad cosumer cofidece (see Table 1). O oe had, busiess cofidece has picked up from the trough reached i March, largely i respose to the recovery of orders, especially those from foreig markets. Likewise, productio expectatios have bee growig sice February. I the costructio sector, too, the cofidece idicator has teded to rise slightly. O the other had, cosumer cofidece has cotiued fallig, although it is still at historically high levels ad purchasig itetios have icreased. I ay evet, other cosumptio idicators (car ad retail sales, amog others) cotiued to reflect sustaied growth. The iformatio available for the euro-area coutries poits i the same directio. Of particular relevace are the improvemet i the busiess climate i Germay ad the upward revisio of official forecasts of Germa GDP growth for the year as a whole. That cotributes to reaffirmig the prospects of recovery i the commo moetary area i the secod half of the year. Likewise, the ogoig pick-up i the exteral eviromet, combied with the gai i competitiveess of the euro agaist the developed coutries sice the start of the year (9 ), will be coducive to the cotributio of the exteral sector to growth i the area becomig less egative. Most ucertaity over growth curretly turs o whether the adjustmet of stocks observed i the first quarter cotiues or ot i the comig moths, give their highly volatile ature ad the measuremet problems ivolved. The euro-area labour market cotiues to be iflueced by the loss of mometum of activity i 199. Employmet has thus bee growig at fallig rates sice the middle of last year, which prevets uemploymet from decliig at a greater pace. Betwee March ad May, the uemploymet rate has held stable at aroud 1.3 of the labour force. Prices have remaied stable throughout the secod quarter despite the icrease i oil prices, which have rise 7 sice February. The 1-moth growth rate of the HICP for the area, after havig rise to 1.1 i April, stood at.9 i Jue. I explaiig the price performace it should be bore i mid that, although the prices of eergy products have climbed most sigificatly, their upward impact o the geeral idex has bee offset by the declie i the prices of services ad, most especially, of food. As a result, the differetial betwee services ad goods iflatio has arrowed from 1. BANCO DE ESPAÑA / ECONOMIC BULLETIN / JULY

18 QUARTERLY REPORT ON THE SPANISH ECONOMY percetage poits i Jauary to.9 poits i Jue (see Chart 9). GDP i the euro area CHART Coutry by coutry, covergece betwee atioal iflatio rates has icreased, as witessed by the fact that their degree of dispersio, measured by the differece betwee the maximum ad miimum values, has moved from.3 percetage poits i Jauary to 1.9 percetage poits i Jue. However, aalysis of the differeces betwee the atioal growth rates of services prices (services beig the most iflatioary compoet of the HICP i all the coutries) gives very differet results: the differetial here wideed by. percetage poits betwee Jauary ad Jue. 3 ANNUAL RATES OF CHANGE (a) Q1 of 1999 EURO AREA 3 I the ear future, there are certai risks that area-wide iflatio may tred upwards, albeit without jeopardisig price stability. Such risks are associated with various factors. First, the course of oil prices which, after a slight correctio i May, have grow most sigificatly i recet weeks, it seemig ulikely that they will fall substatially i what remais of the year. Next, the behaviour of o-eergy commodity prices, which have also bee o somethig of a risig tred. Further, the possibility of wage settlemets agreed o at the begiig of the year i certai coutries ot beig offset by gais i productivity ad passig through to fial prices. Ad fially, the cumulative depreciatio of the euro sice the start of FIN SP NL FR IT GER CONTRIBUTIONS TO THE ANNUAL RATE OF CHANGE IN THE EURO AREA (a) Q1 of Sice May, the ECB has published the exteral accouts of the area as a whole. Thus, o provisioal data, the euro-area curret-accout balace i the first five moths of 1999 ra a surplus of EUR 1. billio (EUR 19. billio i the same period i 199). The trade balace over this same period was EUR 3.1 billio, 9. billio lower tha i 199. I the services balace, paymets exceeded receipts by EUR 3. billio. Ad the icome ad curret trasfers accouts also ra deficits (of EUR 1.1 billio ad 11.1 billio, r e s p e c t i v e l y ) FR SP GER IT NL FIN CONTRIBUTIONS TO GDP GROWTH GDP I the budgetary area, o additioal headway i budgetary cosolidatio is expected i the area as a whole i 1999, particularly i view of the fact that the fial 199 outtur was better tha expected (see Table ). O the estimates available, the cyclically adjusted balace would remai uchaged i relatio to 199, while the actual deficit would show a slight reductio, as a result maily of a fall i the iterest burde. The compositio of the growth of actual output so far i 1999, i particular the stregth of private cosumptio, proves favourable for tax reveue. I ay Source: Eurostat. EXTERNAL DEMAND CHANGE IN INVENTORIES GROSS FIXED CAPITAL FORMATION GOVERNMENT CONSUMPTION PRIVATE CONSUMPTION ( a ) Excludig Belgium, Irelad, Luxembourg, Austria ad Portugal, for which o quarterly atioal accouts data are available BANCO DE ESPAÑA / ECONOMIC BULLETIN / JULY 1999

19 QUARTERLY REPORT ON THE SPANISH ECONOMY Harmoised Idices of Cosumer Prices 1-moth percetage chage CHART 9 evet, this overall evaluatio masks differig situatios i the coutries of the area, as ca be see i Table GOODS EURO AREA SERVICES GENERAL GENERAL (Jue 1999) As regards fiscal programmig for the comig years, two coutries, Germay ad Italy, have disclosed their medium-term plas. The Germa govermet has uveiled the guidig priciples of its federal budget for the year ad of its fiscal strategy up to the year 3. The authorities evisage a broad rage of measures, with further details pedig. For ext year, a 1. cut i federal spedig has bee aouced, which would offset the foresee reductio i the tax burde, placig the federal deficit at 1. of GDP. The Italia govermet has, i its Documet o Ecoomic ad Fiacial Programmig for the period -3, cofirmed the deficit targets of the Stability Programme for the ext two years, although these would be attaied with a primary surplus lower by the order of half a percetage poit of GDP. It is evisaged achievig budgetary equilibrium by the year 3, maily through the cotrol of curret primary expediture SP NL IR POR IT LUX FIN BEL FR GER AUS SERVICES (Jue 1999) EURO AREA I a settig i which fiscal policy is geared to achievig medium-term targets (through positios close to budgetary equilibrium uder eutral cyclical coditios), the possibilities of a couter-cyclical use of fiscal policy are govered by the closeess to or distace from such targets. Moreover, the positios of the various coutries alog the busiess cycle differ. For those further ahead i the cycle, both cosideratios make it advisable to adopt a particularly tight fiscal policy stace, so as to prevet iflatioary pressures emergig ad to etrech the progress made towards the medium-term targets. Coversely, i the coutries i which the slowdow i ecoomic activity has bee sharper (tedig to coicide with those with a more ufavourable structural positio), there is scarcely ay scope for the built-i stabilisers to cotribute to sustaiig activity Moetary ad fiacial developmets 1 EURO AREA 1 Moetary ad fiacial coditios i the euro area were geerally accommodatig durig the secod quarter of 1999, agaist a backdrop of relatively weak growth prospects, without sigificat risks for price stability. However, the cofiguratio of these coditios uderwet sigificat chages durig the period uder cosideratio. IR SP POR NL IT FIN BEL LUX FR AUS GER Source: Eurostat. As idicated i the precedig «Quarterly Report», the ecoomic situatio i the euro area at the outset of the year was marked by relatively pessimistic growth expectatios ad by a very BANCO DE ESPAÑA / ECONOMIC BULLETIN / JULY

20 QUARTERLY REPORT ON THE SPANISH ECONOMY TABLE Geeral govermet fiacial balaces of the euro-area coutries (as a of GDP) (b) Belgium Germay Spai Frace Irelad Italy Luxembourg Netherlads Austria Portugal Filad MEMORANDUM ITEM: Euro area Primary balace (a) Overall balace (a) Public debt Source: ECB (to 199). (a) Deficit ( ) / surplus (+). (b) Natioal stability ad covergece programmes. low iflatio rate. Agaist this backgroud, the Goverig Coucil of the ECB decided at its meetig o th April to cut the iterest rate o its mai refiacig operatios by basis poits to., simultaeously reducig the rates o its stadig ledig ad deposit facilities to 3. ad 1., respectively, from. ad. (see Chart 1). This cut i the official Eurosystem rates was greater tha expected by the markets ad gave rise i April to reductios i iterest rates alog the etire yield curve. Bearig o the exteral eviromet i the secod quarter were expectatios of a iterest rate hike by the Federal Reserve. As previously metioed i this Report, this rise fially took place o 3th Jue. Further, certai sigs of recovery i the pace of activity were discerible i the euro area as from May. These factors led thereafter to upward movemets i euro-area iterest rates, which were sharper i the loger terms. As a result, log-term iterest rates were at higher levels tha those i place at ed As regards the shorter-term iterest rates, those o iterbak deposits rose as from the six-moth maturity (see Chart 11). O the latest iformatio available, the six-moth EURIBOR stood, as of th July, aroud 3 basis poits above the average level reached i May, whereas the icrease i the case of the 1- moth EURIBOR was 1 basis poits. Cosequetly, the slope of the EURIBOR curve has icreased sigificatly i recet weeks, with the differece betwee the 1-moth ad oemoth EURIBOR wideig from 11 basis poits i May to 3 basis poits i Jue ad to 3 basis poits as of th July. By cotrast, the rates o three-moth ad shorter-term iterbak deposits have scarcely altered durig the same period. Loger-term iterest rates have also icreased sigificatly i recet moths. Here, the first icreases were see i the opeig moths of the year; i February ad March there were rises i the yields o te-year bods from the miimum level, below, observed i Jauary. I ay evet, this course of evets itesified as from May ad, at preset, rates stad at aroud, more tha oe percetage poit above the levels at the outset of As a result of these movemets, the log-term iterest rate spread over the Uited States arrowed, especially after 3th Jue, whe the Federal Reserve decided to icrease its itervetio rate ad the upward trajectory of US log-term rates moderated. Thus, the US/euro area spread arrowed i the first half of July to aroud 11 basis poits, after havig stood at over 1 basis poits i May ad J u e. Iitially, the upward movemet i iterest rates i the euro area ad the arrowig of the BANCO DE ESPAÑA / ECONOMIC BULLETIN / JULY 1999

21 QUARTERLY REPORT ON THE SPANISH ECONOMY CHART 1 CHART 11 ECB iterest rates ad euro exchage rates Euro area yield curves. ECB INTEREST RATES. 3.3 INTERBANK MARKET (a) (Mothly average) 3.3. CREDIT FACILITY. 3. DECEMBER MARCH EONIA WEEKLY INTERVENTION ECB JULY JUNE 99.. DEPOSIT FACILITY MAY JAN-99 1-FEB-99 -APR-99 -JUN EONIA Oe moth Three moths Six moths Nie moths Oe year. EURIBOR 1 EURO EXCHANGE RATES AGAINST THE DOLLAR AND THE YEN (a) 1. GOVERNMENT DEBT MARKET ESTIMATED ZERO-COUPON CURVE. 13 YEN (left scale) JULY 99 3 JUNE DECEMBER DOLLAR (right scale) MARCH JAN-99 1-FEB-99 -APR-99 -JUN Sources: Baco de España ad ECB. (a) Dollar/euro ad ye/euro exchage rates. Sources: Baco de España ad ECB. (a) For December 199, average of euro area iterbak iterest rates. log-term spread over US debt did ot check the depreciatio of the euro agaist the dollar durig the secod quarter. I that period, the exchage rate of the euro weakeed by aroud vis-à-vis the US currecy, ruig up a maximum cumulative depreciatio of 1 i relatio to the average exchage rate i Jauary. However, i mid-july the exchage rate of the euro stabilised, embarkig thereafter o a process of appreciatio up to the time of this report goig to press for (see Chart 1). As regards retail bak iterest rates, the lower part of Chart 1 shows that, util May, the rates o retail bak ledig to households ad firms cotiued fallig, reflectig with somethig of a lag the declie i market iterest rates i previous quarters. Despite the rise i log-term iterest rates durig the secod quarter, there was, as o other iteratioal stock exchages, a certai improvemet i equity markets i the euro area owig to the more favourable ecoomic outlook for the zoe. From March to 1th July the Dow Joes Euro Stoxx idex rose by aroud., with a cocurret reductio i its volatility i relatio to the patter of previous moths. BANCO DE ESPAÑA / ECONOMIC BULLETIN / JULY

22 QUARTERLY REPORT ON THE SPANISH ECONOMY The brighter ecoomic outlook ad the low levels of short-term iterest rates have also bee reflected i the moetary ad credit aggregates. O iformatio to May, the behaviour of these aggregates has bee relatively expasioary (see Chart 1). The bechmark moetary aggregate (M3) grew by aroud i April ad May compared with a year earlier, ad its movig average over the last three moths stood at.. This was essetially due to the strog growth of the demad for sight deposits which, after deceleratig i March, gave sigs of reewed vigour i April ad May. M1 posted year-o-year growth of over 11 i these two moths. Amog the other fiacial assets icluded i M3, oly the demad for shares i moey market fuds showed great resiliece, growig at aroud 1 i May compared with twelve moths earlier. CHART 1 Moetary ad credit aggregates ad iterest rates i the euro area MONETARY AGGREGATES 1-moth percetage chage based o origial series M1 CREDIT TO FIRMS AND HOUSEHOLDS 1-moth percetage chage based o origial series M Turig to the couterparts of M3, the high growth of fiacig to residet sectors i the euro area cotiued, risig to almost yearo-year i May. This reflected the strog expasio of fiacig to households ad o-fiacial firms, which grew 1. i May compared with twelve moths earlier, ad very moderate growth of fiacig to geeral govermet (1. ). The behaviour of the loger-term liabilities ot icluded i M3 was geerally fairly stable, with year-o-year growth of aroud. The differece betwee the growth of credit, o oe had, ad of M3 ad other liabilities, o the other, was fiaced by meas of a reductio i the et exteral asset positio of MFIs. 1 BANK AND MONEY AND DEBT MARKET INTEREST RATES (Mothly average) 1 With respect to moetary policy implemetatio durig the secod quarter, the liquidity provided by the Eurosystem through the mai refiacig operatios (7 of the total) ad the loger-term operatios ( of the total) meat that the overight iterbak iterest rate, EONIA, held at betwee. ad., aroud 3 basis poits below the average levels i March. The pro rata percetages applied by the Eurosystem at its mai refiacig operatios remaied very small throughout the secod quarter ad, i particular, i recet weeks, where the allotmet ratio has varied betwee ad 7. The et liquidity provided by the Eurosystem i the third, fourth ad fifth reserve maiteace periods, correspodig to the secod quarter, amouted to EUR 17. billio, 17 billio ad 17.7 billio, respectively, which sufficed to meet istitutios liquidity requiremets i respect of miimum reserves ad the effect of autoomous factors. These factors etailed, o average, a et absorptio of liquidity for the respective amouts of EUR 7. billio,. billio ad 7. billio LOANS TO FIRMS AT OVER ONE YEAR THREE-MONTH EURIBOR BANK DEPOSITS UP TO TWO YEARS MATURITY Sources: Baco de España ad ECB. HOUSING LOANS TO HOUSEHOLDS TEN-YEAR BONDS BANCO DE ESPAÑA / ECONOMIC BULLETIN / JULY 1999