MNI Light At The End of The Tunnel? Euro Area Economy And the ECB Johanna Treeck, Senior ECB Correspondent, September 2015
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ECB Still Fighting
MNI Deutsche Börse Group 4 Euro Area Disappointment 4 3 2 1 0-1 -2-3 -4-5 Euro area United Kingdom United States 2007 [YR2007] 2008 [YR2008] 2009 [YR2009] 2010 [YR2010] 2011 [YR2011] 2012 [YR2012] 2013 [YR2013] 2014 [YR2014]
MNI Deutsche Börse Group 5 Euro Area GDP 6 4 2 0-2 -4 Eurozone GDP ECB Staff Forecast -6-8 2007Q1 2008Q1 2009Q1 2010Q1 2011Q1 2012Q1 2013Q1 2014Q1 2015Q1 2016Q1 2017Q1
MNI Deutsche Börse Group 6 Euro Area Inflation 5 4 3 2 1 Inflation ECB Staff Forecast 0-1 2007Jun 2008Jan 2008Aug 2009Mar 2009Oct 2010May 2010Dec 2011Jul 2012Feb 2012Sep 2013Apr 2013Nov 2014Jun 2015Jan 2015Aug 2016Mar 2016Oct 2017May 2017Dec
MNI Deutsche Börse Group 7 Economic Environment Disappointing - The Euro area has emerged much more slowly from the great recession than other advanced economies - The ECB has described economic prospects for the currency are as disappointing from both a longer-term and an international perspective. Growth - ECB staff cut GDP forecast To 1.4% (1.5%) in 2015, 1.7% (1.9%) in 2016, 1.8% (2.0%) in 2017 Inflation -ECB staff cut HICP forecast to 0.1% (0.3%) in 2015, 1.1% (1.5%) in 2016, 1.7% (1.8%) in 2017 - While the revision for 2017 is minimal it is key as debatable whether in line with price stability objective Downside Risks - The ECB sees downside risks to its September forecasts as cut-off date was August 12 - ECB staff forecasts tended to overshoot in recent years, especially on inflation
MNI Deutsche Börse Group 8 5-year/5-year Forward Inflation Swaps 3 2.5 2 1.5 5-year/5-year 1 31.01.2007 29.06.2007 30.11.2007 30.04.2008 30.09.2008 27.02.2009 31.07.2009 31.12.2009 31.05.2010 29.10.2010 31.03.2011 31.08.2011 31.01.2012 29.06.2012 30.11.2012 30.04.2013 30.09.2013 28.02.2014 31.07.2014 31.12.2014 29.05.2015
MNI Deutsche Börse Group 9 Eurosystem Balance Sheet 3000000 2500000 2000000 1500000 1000000 Asset purchases Lending to banks Other assets 500000 0 2007W01 2007W27 2008W01 2008W27 2009W01 2009W27 2009W53 2010W26 2010W52 2011W26 2011W52 2012W26 2012W52 2013W26 2013W52 2014W26 2014W52 2015W26
MNI Deutsche Börse Group 10 ECB Response Inflation Expectations - ECB favored measure of inflation expectation below pre-qe levels ECB Signal - ECB emphasizes willingness and ability to act, if warranted, by using all the instruments available within its mandate Real Economy -Data from real economy no source of additional concerns -Data largely predate China devaluation Markets - US Federal Reserve did not raise rates - Euro higher vs. US Dollar - Commodity prices still depressed - China remains a source of concern Timing -ECB More Likely to move in December than October -Even small downward revision of 2017 inflation will prompt move
MNI Deutsche Börse Group 11 Euro Area Core Inflation Euroo Area Core Inflation 4 3.5 3 2.5 2 1.5 1 0.5 0-0.5-1 Headline Inflation Core Inflation 2007Feb 2007Aug 2008Feb 2008Aug 2009Feb 2009Aug 2010Feb 2010Aug 2011Feb 2011Aug 2012Feb 2012Aug 2013Feb 2013Aug 2014Feb 2014Aug 2015Feb 2015Aug
Confidential MNI Deutsche Börse Group 12 Euro Area Recovery Fading HICP (Y/Y Percentage Change) 2015 3Q 0.1 0.3 2015 4Q 0.4 0.4 2016 1Q 1.1 0.5 2016 2Q 0.8 0.5 2016 3Q 1.2 0.5 2016 4Q 1.5 0.5 2017 1Q 1.6 0.5 2017 2Q 1.6 0.4 2017 3Q 1.7 0.4 2017 4Q 1.5 0.4 GDP (Q/Q Percentage Change)
MNI Deutsche Börse Group 13 Drifting Apart 6 4 2 0-2 -4-6 -8 Greece Cyprus Germany Spain Italy -10 2007Q1 2007Q3 2008Q1 2008Q3 2009Q1 2009Q3 2010Q1 2010Q3 2011Q1 2011Q3 2012Q1 2012Q3 2013Q1 2013Q3 2014Q1 2014Q3 2015Q1
MNI Deutsche Börse Group 14 Warning "In a monetary union you can't afford to have large and increasing structural divergences between countries. They tend to become explosive." ECB President Mario Draghi, May 23 2015
MNI Deutsche Börse Group 15 Outlook Not Bright -Signs of growth slowing after 1Q 2017, unless other policy areas act ECB Impact - Economic divergence undermines effective monetary policy EMU Viability -Acute phase of crisis over, but question of viability remains unanswered Conclusion -EMU is out of the tunnel already, but it s not a sunny day
Presentation Manual Deutsche Börse Group 16 Conclusion
Thank you Johanna Treeck For more information about MNI, please visit www.mni-news.com or contact sales@mni-news.com