Euro Area
It is often claimed that tax and welfare reforms that aim at enhancing efficiency may come at the cost of cyclical stabilisation. Reducing the generosity of welfare systems and lowering taxes may boost efficiency and output, and improve market adjustment to shocks. But, by reducing the size of automatic stabilisers, it may also imply less cyclical smoothing. This would be unwelcome in EMU given the loss of national monetary autonomy and the well-known pitfalls of active fiscal management. This paper argues that the alleged trade-off between efficiency/flexibility and stabilisation may not exist. We show that, if the initial level of the tax burden is high, reducing it may lead to higher output stabilisation in the event of a supply shock and higher inflation stabilisation in the event of a demand shock. The threshold level of taxation depends on the preferences of the central bank over inflation and output. Econometric and numerical simulations show that European countries — ...
This paper reviews first the fiscal policy recommendations by the EU, the IMF and the OECD for Finland, Greece, Ireland, Luxembourg, the Netherlands, Portugal and Spain. All these countries had inflation above the euro area average in early 2001, some by a considerable margin. The fiscal policy prescriptions deviate little, the EU, the IMF and the OECD generally recommending an active use of fiscal policy. There are some exceptions, however. The next section examines indicators of excess demand in these countries. This is followed by a review of the factors that help or hinder market-based adjustment, including simulations to gauge their effect. Market-based adjustment to demand shocks depends critically on whether the effect of a lower real interest rate is strong relative to the loss in competitiveness, on the size of wealth effects, on wage and price setting behavior, on the supply response and on the strength of trade integration. Simulations suggest that market-based ...
This paper reviews some of the difficult challenges facing debt managers in the years to come. In countries experiencing a rapidly diminishing gross debt, particularly the United States, this raises the issue of whether private-sector securities can serve as a substitute for the traditionally important government debt market. In the euro area, following the creation of the common currency, the issue is how to avoid that independent debt management strategies hamper the creation of a more efficient euro-area financial market. Turning to Japan, the level of debt is projected to rise rapidly and there is a need to improve the liquidity of the Japanese government bond market. To this end, a number of measures could be introduced to make debt management more efficient, yielding significant cost saving ...
One year ago most economic observers predicted that "fundamentals" were such that the euro was set to appreciate. In the event, the opposite has occurred. This has rekindled a debate on how well foreign exchange markets reflect fundamental determinants and led to calls for greater exchange rate stability, possibly through the introduction of formal exchange rate target zones. The first part of the paper focuses on these issues. It also looks at the euro’s prospects as an international currency. To give a better sense of perspective, the paper compares recent exchange rate movements and measures of volatility with longerterm trends. The article argues that the difference in cyclical conditions in the United States and the euro area seems to have been a dominant factor driving the sizeable euro depreciation since early 1999, although when evaluated against longer term trends it appears much less dramatic; the euro is presently at about its past 5-year average level expressed in nominal effective terms ...
For a long time European Economic and Monetary Union was mainly considered an internal European issue and external consequences were largely ignored. In contrast to most previous analyses, this paper looks at a number of international implications of monetary union. It is argued that several factors could contribute to the euro becoming an international currency in the future and a competitor to the US dollar in this respect. The degree of uncertainty attached to this outcome, however, remains considerable and in any event the emergence of the euro as a major international currency is likely to take some time. Given the expected size of the euro-zone and the likelihood of the euro becoming an international currency, fiscal and monetary policies in the area are likely to have a significant impact on the macroeconomic environment in the rest of the world. An important issue is how will monetary union affect major bilateral exchange rate developments and their volatility. A number of ...
The increasing, and ultimately complete, fixity of exchange rates between countries entering into the European Monetary Union (EMU) throws the burden of adjustment onto labour and product markets. At present, most countries adhering to the exchange rate mechanism of the EMS have relatively rigid labour markets, implying that, in the absence of structural reform, some countries may experience higher unemployment in moving towards the low inflation rates and modest deficit levels that are prerequisites for entering EMU. Given the limited availability of macroeconomic tools, some pressures to discriminate against imports from non-EC countries may emerge. Even after EMU, remaining differences in industrial and trading structures as well as in the supply and demand shocks experienced by individual Member countries will impose some need for localised adjustment. The relative wage and price changes involved in such adjustments may have disruptive effects on income and employment if labour ...
Secondo le previsioni, la crescita del PIL dovrebbe rallentare, attestandosi allo 0,6 % nel 2023, per risalire progressivamente all'0,9 % nel 2024 e al'1,5 % nel 2025. I consumi privati saranno sostenuti dalla rigidità dei mercati del lavoro e dall'aumento dei redditi reali a seguito del calo dell'inflazione. Nel contempo, i maggiori costi di finanziamento e l'incertezza graveranno sugli investimenti privati. Nel corso del periodo considerato dalle proiezioni, la crescita dei salari dovrebbe subire una graduale diminuzione. Le strozzature dell'occupazione nel settore dei servizi faranno sì che l'inflazione di fondo rimanga elevata fino alla metà del 2025, malgrado l'attuale diminuzione dell'inflazione complessiva.
GDP growth is projected to slow to 0.6% in 2023 before strengthening gradually to 0.9% in 2024 and 1.5% in 2025. Private consumption will be supported by tight labour markets and increasing real incomes as inflation recedes. At the same time, higher costs of financing and uncertainty will weigh on private investment. Wage growth is projected to ease only gradually over the projection period. Employment bottlenecks in services will keep core inflation elevated until mid-2025, despite ongoing reductions in headline inflation.
La croissance du PIB devrait ralentir à 0.6 % en 2023, avant de se raffermir progressivement pour atteindre 0.9 % en 2024 et 1.5 % en 2025. La tension sur les marchés du travail et la progression des revenus réels, dans un contexte de recul de l’inflation, stimuleront la consommation privée. Dans le même temps, la hausse des coûts de financement et l’incertitude pèseront sur l’investissement privé. La croissance des salaires ne devrait fléchir que progressivement au cours de la période considérée. Les goulets d’étranglement de l’emploi dans le secteur des services maintiendront l’inflation sous-jacente à un niveau élevé jusqu’à la mi‑2025, malgré les baisses continues de l’inflation globale.
Secondo le previsioni, la crescita del PIL subirà un rallentamento fino a raggiungere lo 0,9 % nel 2023 per poi rafforzarsi gradualmente e risalire all'1,5 % nel 2024. I consumi privati saranno sostenuti dalla solidità dei mercati del lavoro, ma l'aumento dei costi di finanziamento e l'incertezza graveranno sugli investimenti privati. Le condizioni tese del mercato del lavoro continueranno ad alimentare la crescita dei salari nel 2023, che inizierà a diminuire gradualmente nel 2024. Il calo dei prezzi dei generi alimentari e dell'energia contribuirà a ridurre l'inflazione complessiva nel 2023, mentre quella di fondo rimarrà elevata. I rischi restano orientati al ribasso in quanto un'altra impennata dei prezzi dell'energia potrebbe innescare nuovamente la crisi energetica e l'orientamento restrittivo della politica monetaria potrebbe esporre le attuali vulnerabilità del settore finanziario.
GDP growth is projected to slow to 0.9% in 2023 and then gradually strengthen to 1.5% in 2024. Private consumption will be supported by strong labour markets, but higher costs of financing and uncertainty will weigh on private investment. The tight labour market will continue to fuel wage growth in 2023, before wages start gradually easing in 2024. Lower energy and food prices will help reduce headline inflation in 2023, but core inflation will remain elevated. Risks remain tilted to the downside as another spike in energy prices could reignite the energy crisis, and restrictive monetary policy could expose existing financial sector vulnerabilities.
La croissance du PIB devrait refluer à 0.9 % en 2023, puis se redresser progressivement pour atteindre 1.5 % en 2024. La consommation privée sera soutenue par la vigueur des marchés du travail, mais l’augmentation des coûts de financement et l’incertitude pèseront sur l’investissement privé. Les tensions observées sur les marchés du travail continueront d’alimenter la croissance des salaires en 2023, avant que débute une phase de modération salariale progressive en 2024. La diminution des prix de l’énergie et des produits alimentaires contribuera à réduire l’inflation globale en 2023, mais l’inflation sous‑jacente demeurera élevée. Les risques restent orientés de manière prédominante à la baisse, étant donné qu’une nouvelle flambée des prix de l’énergie pourrait raviver la crise énergétique, et qu’une politique monétaire restrictive pourrait mettre au jour les vulnérabilités existant dans le secteur financier.
After a strong first half of the year, real GDP growth is projected at 3.3% in 2022 and only 0.5% in 2023 owing to Russia’s war of aggression against Ukraine, monetary policy tightening and the global slowdown. Growth is projected to rebound to 1.4% in 2024 as consumption and investment pick up. Inflation is set to decline only gradually, remaining above target in 2024, fuelled by elevated energy prices and tight labour markets. Risks remain tilted to the downside as cold winters and further disruptions in energy supply would hit growth while pushing inflation higher.
Après un premier semestre dynamique, la croissance du PIB réel devrait s’établir à 3.3 % en 2022 puis à seulement 0.5 % en 2023, en raison de la guerre d’agression menée par la Russie contre l’Ukraine, du durcissement de la politique monétaire et du ralentissement de l’économie mondiale. Selon les projections, la croissance devrait rebondir à 1.4 % en 2024 à la faveur du redressement de la consommation et de l’investissement. L’inflation ne devrait refluer que peu à peu, restant supérieure à l’objectif en 2024, sous l’effet de la flambée des prix de l’énergie et des tensions sur les marchés du travail. Les risques vont dans le sens d’une divergence à la baisse par rapport aux projections car des hivers rigoureux et de nouvelles perturbations de l’approvisionnement en énergie pourraient freiner la croissance et tirer encore plus l’inflation vers le haut.
After a strong rebound in 2021, real GDP is projected to grow by 2.6% in 2022 and 1.6% in 2023. Growth is set to be significantly damped in the first half of 2022 by the war in Ukraine and the lockdowns in China. These factors are also pushing inflation up further, to a projected 7% this year. This is weighing on households’ consumption and increasing uncertainty. With the Russian oil embargo from 2023 pushing oil prices up, growth is expected to remain subdued in 2023 and inflation is set to decline only gradually. Risks to economic activity remain tilted to the downside: severe disruptions in energy, notably gas, supply would hit growth in Europe while pushing inflation further up.
Après un solide rebond en 2021, le PIB réel devrait croître de 2.6 % en 2022, puis de 1.6 % en 2023. La croissance devrait nettement s’essouffler au premier semestre de 2022, sous l’effet de la guerre en Ukraine, mais aussi des mesures de confinement prises en Chine. Ces facteurs continuent en outre de faire grimper l’inflation jusqu’à un taux qui pourrait atteindre 7 % cette année. Cette inflation pèse sur la consommation des ménages et accroît les incertitudes. Avec l’embargo sur le pétrole russe à compter de 2023, qui tirera les prix du pétrole à la hausse, la croissance devrait rester modérée en 2023 et l’inflation ne devrait reculer que progressivement. Les risques à la baisse pour l’activité économique restent prépondérants : de sérieuses difficultés d’approvisionnement énergétique, notamment en gaz, porteraient un coup à la croissance en Europe tout en alimentant encore l’inflation.