Peter Praet Member of the Executive Board of the European Central Bank Economic developments in the euro area Swiss Financial Analysts Association Geneva, 7 th May 2018
Global PMI composite output and global output (diffusion index, lhs; q-o-q percentage change, rhs) Composite output PMIs (diffusion index; SA; monthly data) 62 Global GDP (q-o-q percentage change, rhs) Global composite output Global composite output - long-term average 2.0 62 Euro area Advanced economies excl. euro area Emerging market economies 58 1.5 58 54 1.0 54 50 0.5 50 46 0.0 46 42-0.5 42 38-1.0 38 34 2007 2009 2011 2013 2015 2017 Sources: Markit, ECB calculations. Note: Long-term average refers to 1999 onwards. Latest observation: 2018Q1 (PMI) and 2017Q4 (global GDP). -1.5 34 2007 2009 2011 2013 2015 2017 Sources: Markit, ECB calculations. Latest observation: April 2018. 2018-05-07 Swiss Financial Analysts Association 2
Price level (1999m1=100, trend = year-on-year inflation at 2%) HICP and HICP excluding energy and food (annual percentage changes) 150 140 130 120 110 100 HICP 90 1997 2000 2003 2006 2009 2012 2015 2018 Sources: Eurostat and ECB Calculations. Latest observation: April 2018 (flash estimate). trend 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0-0.5 HICP -1.0 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 Source: Eurostat. Latest observation: April 2018 (flash estimates). HICP excluding energy and food 1.2 0.7 2018-05-07 Swiss Financial Analysts Association 3
Monetary policy stance determined by combination & interaction of: our policy rates, our asset purchase programme, and our forward guidance on each of these tools complemented by: the TLTROs, which will remain outstanding for the next three years 2018-05-07 Swiss Financial Analysts Association 4
The ECB s forward guidance Key ECB interest rates expected to remain at present levels for an extended period of time and well past horizon of net asset purchases Asset Purchase Programme (APP) net asset purchases intended to continue at monthly pace of 30 billion, until end-sep 2018 or beyond, if necessary & in any case until GovC sees sustained adjustment in path of inflation (SAPI) consistent with inflation aim Eurosystem will reinvest principal payments from maturing securities for an extended period of time after end of net purchases, and in any case for as long as necessary 2018-05-07 Swiss Financial Analysts Association 5
Criteria for sustained adjustment in the path of inflation (SAPI) Convergence Headline inflation on course to reach levels below, but close to 2% in the medium term; Confidence Sufficient confidence in durable stabilisation of inflation around these levels; Resilience Resilience of inflation convergence even after the end of net asset purchases. 2018-05-07 Swiss Financial Analysts Association 6
Measures of underlying inflation (annual percentage changes) Wage Phillips curve (x-axis: percentage points; y-axis: annual percentage changes) 3.0 HICP excluding energy and food HICP excluding energy, food, travel-related items and clothing Long-term average HICP excluding energy and food U2Core Supercore 2.5 2.0 1.5 1.0 0.5 0.0 2010 2012 2014 2016 2018 Sources: Eurostat, ECB calculations. Note: The latest observations are March 2018. The dynamic factor model (U2core) is based on the full 93 HICP items from each of 12 countries. Supercore is based only on those items in HICP excluding food and energy that are sensitive to slack as measured by the output gap. The range includes exclusion-based measures, trimmed means and a weighted median. 2018-05-07 Swiss Financial Analysts Association 7 Sources: Eurostat, ECB calculations. Note: Broad unemployment rate is the ratio of the (i) total unemployed, (ii) underemployed part-time workers who currently have jobs, although not at the optimal weekly hours they would like, and (iii) inactive persons who are marginally attached to the labour market plus all marginally attached workers. From 2018Q1 on: March 2018 MPE. The broad unemployment rate forecast assumes that the difference between the unemployment rate and the broad unemployment rate declines at the same pace as observed in the past 4 quarters. The black line represents a simple fitted Phillips curve. The fitted curve is based on data for 2006Q1 to 2017Q4. Latest observations: 2017Q4.
Euro area real GDP level (1999 =100)? Sources: Commission autumn 2017 forecast, ECB calculations. 2018-05-07 Swiss Financial Analysts Association 8
The broad unemployment rate and its components (percentage of the extended labour force) Employment, total hours worked and average hours worked (index, 2008Q1=100) Sources: Eurostat, ECB calculations. Notes: Corrected for the impact of methodological changes. Latest observation: 2017Q4. Source: Eurostat. Latest observation: 2017Q4. 2018-05-07 Swiss Financial Analysts Association 9
Euro Rubric area short-term outlook Real GDP growth survey indicators (lhs: diffusion index; rhs: q-o-q % change) Citigroup Economic Surprise index Real GDP (rhs) ESI (lhs) Composite PMI (lhs) March 2018 MPE (rhs) 125 100 Real Variables Markit PMI Previous round (25 Apr) Nominal Variables Confidence EA CESI 125 100 75 75 50 50 25 25 0 0-25 -25-50 -50-75 -75-100 Jan.14 Jul.14 Jan.15 Jul.15 Jan.16 Jul.16 Jan.17 Jul.17 Jan.18-100 Sources: Eurostat, Markit, European Commission, ECB calculations. Latest observations: 2018Q1 for GDP, March 2018 for ESI, April 2018 for PMI. 2018-05-07 Swiss Financial Analysts Association 10 Sources: Bloomberg, ECB calculations Note: The Citi Economic Surprise Index (CESI) measures data surprises for 54 series (over a rolling 90-days window with exponentially declining weights), defined as the normalised deviation of releases relative to forecasts. Latest observation: 3 May 2018.
Factors Rubric limiting production Factors limiting production in industry (percentage of firms) 80 None Shortage of labour Financial constraints Insufficient demand Shortage space/equipment Other 60 40 20 0 2008 2010 2012 2014 2016 2018 Sources: DG-ECFIN, Eurostat, ECB calculations. Latest observation: March 2018. 2018-05-07 Swiss Financial Analysts Association 11
Business Rubric supply side constraints Capacity utilisation (capital goods sector, percent) Manufacturing PMI suppliers delivery times (100 Index) 100 Long-term max and min Long-term average 2018Q1 Manufacturing Intermediate goods Capital goods Consumer goods 95 80 90 85 70 80 75 70 65 60 60 50 40 55 EA DE FR IT ES 30 2008 2010 2012 2014 2016 2018 Sources: DG-ECFIN, ECB calculations. Note: Long-term average refers to the period since 1987. Latest observation: 2018Q1 2018-05-07 Swiss Financial Analysts Association 12 Source: Markit. Note: A movement of the plotted index above 50 means delivery times have lengthened on average, which means suppliers have become busier due to demand. Latest observations: March 2018, April 2018 for Manufacturing.
Prices Rubric charged and backlogs of work in the manufacturing sector PMI data on prices charged (diffusion index, deviation from long-term average index value) Backlogs of work across sectors (index 50=no change) Capital goods Intermediate goods Capital goods Intermediate goods 15 Consumer goods 70 Consumer goods 10 5 60 0 50-5 -10-15 40 30-20 2008 2010 2012 2014 2016 2018 20 2008 2010 2012 2014 2016 2018 Sources: IHS Markit, ECB calculations. Latest observation: March 2018. Sources: Markit, ECB calculations. Latest observation: March 2018. 2018-05-07 Swiss Financial Analysts Association 13
Option-implied probability density function of euro area inflation over the next two years Survey-implied probability density function of euro area inflation in two years time 0.8 Latest observation (30 Apr 2018) 2017Q3 (29 Sep 2017) 2015Q1 (31 Mar 2015) 0.8 Latest SPF (2018Q2) 2017Q3 2015Q1 0.6 0.6 0.4 0.4 0.2 0.2 0.0-4% -3% -2% -1% 0% 1% 2% 3% 4% 0-4% -3% -2% -1% 0% 1% 2% 3% 4% Sources: Bloomberg, Reuters, ECB calculations. Notes: This chart shows the risk-neutral probability distribution function implied by two-year zero-coupon inflation options. These risk-neutral probabilities may differ significantly from physical, or true, probabilities. They are estimated on the basis of call ( caplets ) and put options ( floorlets ) with different strike rates on the (three-month lagged) euro area HICPxT (ex tobacco) index, assuming Black-Scholes option pricing and implied volatilities that vary across strike rates ( volatility smile ). 2018-05-07 Swiss Financial Analysts Association 14 Source: ECB Survey of Professional Forecasters.