EN 2007 I 0112007 MONTHLY BULLETIN 0212007 SEPTEMBER 0312007 MONTHLY BULLETIN MONTHLY 04 09 12007 0512007 0612007 0712007 0812007 0912007 ISSN 1561013-6 1012007 9 771561 013006 EUROPEAN CENTRAL BANK EUROPEAN 1112007 1212007 MONTHLY BULLETIN SEPTEMBER 2007 In 2007 all ECB publications feature a motif taken from the €20 banknote. © European Central Bank, 2007 Address Kaiserstrasse 29 60311 Frankfurt am Main Germany Postal address Postfach 16 03 19 60066 Frankfurt am Main Germany Telephone +49 69 1344 0 Website http://www.ecb.europa.eu Fax +49 69 1344 6000 Telex 411 144 ecb d This Bulletin was produced under the responsibility of the Executive Board of the ECB. Translations are prepared and published by the national central banks. All rights reserved. Reproduction for educational and non-commercial purposes is permitted provided that the source is acknowledged. The cut-off date for the statistics included in this issue was 5 September 2007. ISSN 1561-0136 (print) ISSN 1725-2822 (online) CONTENTS EDITORIAL 5 EURO AREA STATISTICS S1 ECONOMIC AND MONETARY ANNEXES DEVELOPMENTS 9 Chronology of monetary policy The external environment of the euro area 9 measures of the Eurosystem I Monetary and financial developments 17 The TARGET (Trans-European Automated Real-time Gross settlement Prices and costs 59 Express Transfer) system V Output, demand and the labour market 67 Documents published by the Fiscal developments 78 European Central Bank since 2006 IX Exchange rate and balance of payments Glossary XVII developments 84 Boxes: 1 House price developments in central and eastern European countries 12 2 Liquidity conditions and monetary policy operations in the period from 15 May to 7 August 2007 28 3 The ECB’s additional open market operations in the period from 8 August to 5 September 2007 30 4 Seasonality in break-even inflation rates 37 5 The relationship between listed companies’ earnings growth and output growth in the economy as a whole 43 6 Recent developments in non-financial corporations’ leverage ratios 52 7 Recent food price developments in world markets and the euro area 60 8 Euro area employment in 2006: a more balanced growth 71 9 ECB staff macroeconomic projections for the euro area 75 10 Flat taxes in central and eastern Europe 81 ECB Monthly Bulletin September 2007 3 ABBREVIATIONS COUNTRIES LU Luxembourg BE Belgium HU Hungary BG Bulgaria MT Malta CZ Czech Republic NL Netherlands DK Denmark AT Austria DE Germany PL Poland EE Estonia PT Portugal IE Ireland RO Romania GR Greece SI Slovenia ES Spain SK Slovakia FR France FI Finland IT Italy SE Sweden CY Cyprus UK United Kingdom LV Latvia JP Japan LT Lithuania US United States OTHERS BIS Bank for International Settlements b.o.p. balance of payments BPM5 IMF Balance of Payments Manual (5th edition) CD certificate of deposit c.i.f. cost, insurance and freight at the importer’s border CPI Consumer Price Index ECB European Central Bank EER effective exchange rate EMI European Monetary Institute EMU Economic and Monetary Union ESA 95 European System of Accounts 1995 ESCB European System of Central Banks EU European Union EUR euro f.o.b. free on board at the exporter’s border GDP gross domestic product HICP Harmonised Index of Consumer Prices HWWI Hamburg Institute of International Economics ILO International Labour Organization IMF International Monetary Fund MFI monetary financial institution NACE Rev. 1 Statistical classification of economic activities in the European Community NCB national central bank OECD Organisation for Economic Co-operation and Development PPI Producer Price Index SITC Rev. 3 Standard International Trade Classification (revision 3) ULCM unit labour costs in manufacturing ULCT unit labour costs in the total economy In accordance with Community practice, the EU countries are listed in this Bulletin using the alphabetical order of the country names in the national languages. ECB Monthly Bulletin 4 September 2007 EDITORIAL At its meeting on 6 September 2007, the compared with 0.7% in the previous quarter. Governing Council of the ECB decided, on the However, due account should be taken of the basis of its regular economic and monetary volatility of these growth rates. Accordingly, analyses, to leave the minimum bid rate on the economic growth during the first half of 2007, main refinancing operations of the Eurosystem as a whole, was in line with potential growth. unchanged at 4.00%. The interest rates on the Data on activity in the third quarter – from marginal lending facility and the deposit facility various confidence surveys and indicator-based were also left unchanged at 5.00% and 3.00% estimates – remain favourable overall and respectively. The information that has become support the assessment that real GDP is growing available since the previous meeting of the at sustained rates. In particular, the latest data Governing Council has confirmed that the on unemployment are favourable and the levels medium-term outlook for price stability remains of all confidence indicators to August were subject to upside risks, as identified by both its high. Global economic activity is expected to economic and monetary analyses. Incoming remain robust, as the likely slowdown in the macroeconomic data also confirm the strong United States is expected to be largely offset by fundamentals of the euro area economy and the continued strong growth in emerging support a favourable medium-term outlook for markets. This will continue to provide support real GDP growth. Against this background, the to euro area exports and investment. In addition, ECB’s monetary policy stance is still on the consumption growth in the euro area should accommodative side with, inter alia, money and strengthen further over time, in line with credit growth vigorous in the euro area. At the developments in real disposable income, as same time, the financial market volatility and employment conditions improve further. That reappraisal of risk of recent weeks have led to said, in view of the overall potential impact of an increase in uncertainty. Given this high level increased financial market volatility and the of uncertainty, it is appropriate to gather re-pricing of risk on the real economy, additional information and to examine new data appropriate monitoring of the economy’s before drawing further conclusions for monetary evolution is necessary. policy in the context of the ECB’s medium- term-oriented monetary policy strategy aimed This outlook is also reflected in the September at delivering price stability. Accordingly, the 2007 ECB staff macroeconomic projections for Governing Council will monitor very closely the euro area, which for the first time include all developments. On the basis of its assessment, Cyprus and Malta. The projections foresee and by acting in a firm and timely manner, the average annual real GDP growth in a range Governing Council will ensure that risks to between 2.2% and 2.8% in 2007, and between price stability over the medium term do not 1.8% and 2.8% in 2008. In comparison with the materialise and that medium-term inflation June Eurosystem staff projections, the range expectations remain firmly anchored in line projected for real GDP growth in 2007 has been with price stability. This is all the more revised slightly downwards, mainly reflecting important at times of financial market volatility the assumptions of somewhat higher oil prices and increased uncertainty. As regards the and slightly tighter market financing conditions financial markets, the Governing Council will due to higher average risk premia. continue to pay great attention to developments over the period to come. In the view of the Governing Council, the ranges presented serve as a good reminder of Considering first the economic analysis, the the general uncertainty surrounding economic data available suggest that economic activity in projections, which it is worthwhile emphasising the euro area is continuing to expand at sustained given the current volatility in the financial rates. Euro area real GDP growth in the second markets. The risks to these projections for quarter moderated to 0.3% quarter on quarter, economic growth are judged to lie on the ECB Monthly Bulletin September 2007 5 downside. These downside risks relate mainly When identifying and assessing the policy- to a potentially broader impact from the ongoing relevant underlying trends in monetary reappraisal of risk in financial markets, global expansion, it is important to look through short- imbalances and protectionist pressures, as well term volatility and the impact of temporary as further oil and commodity price rises. factors on developments in specific monetary aggregates. Taking the appropriate broader and With respect to price developments, according medium-term-oriented perspective, there are to Eurostat’s flash estimate, annual HICP several indications that increases in short-term inflation was 1.8% in August 2007, the same interest rates over recent quarters have rate as in the previous month. However, over influenced monetary developments. For the remainder of this year, inflation rates are example, increases in short-term rates have likely to increase again to above 2%. In the contributed to a more modest expansion of M1, September 2007 ECB staff projections, annual as the opportunity cost of holding the most HICP inflation is projected to lie between 1.9% liquid components of M3 has increased. and 2.1% in 2007, and between 1.5% and 2.5% Moreover, higher short-term rates have led to in 2008. In 2008, a declining impact from some stabilisation in the growth of MFI credit indirect taxes and energy prices is expected to to the private sector, albeit at double-digit be compensated by higher pressures from unit annual rates, with the growth of household labour costs. Compared with the June 2007 borrowing moderating as house price dynamics Eurosystem staff projections, the new ranges and real estate activity have slowed.