Oecd amro s1 03_oecd dr eckhard wurzel

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2nd OECD-AMRO Asian Regional Roundtable

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Oecd amro s1 03_oecd dr eckhard wurzel

  1. 1. Recent developments in the euro area and challenges Second OECD-AMRO Joint Asian Regional Roundtable 19 July 2013 Eckhard Wurzel OECD Economics Department
  2. 2. 2 Interest rates had converged to very low levels 0 5 10 15 20 25 30 0 5 10 15 20 25 30 1990:Q1 1991:Q1 1992:Q1 1993:Q1 1994:Q1 1995:Q1 1996:Q1 1997:Q1 1998:Q1 1999:Q1 2000:Q1 2001:Q1 2002:Q1 2003:Q1 2004:Q1 2005:Q1 2006:Q1 2007:Q1 2008:Q1 2009:Q1 2010:Q1 2011:Q1 2012:Q1 2013:Q1 Germany Ireland Italy Portugal Spain Greece % % Note: 10-year government bonds. Source: OECD.
  3. 3. 3 Government debt is high and increased prior to the crisis in some countries ... Note: General government gross debt in the Maastricht definition. Source: OECD Economic Outlook 93 database. 0 20 40 60 80 100 120 140 160 180 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Greece Italy Portugal % of GDP
  4. 4. 4 ... but not in others Note: General government gross debt in the Maastricht definition. Source: OECD Economic Outlook 93 database 0 20 40 60 80 100 120 140 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Spain Ireland % of GDP
  5. 5. 5 In several countries, household debt was on the rise Gross household debt per household disposable income Source: OECD Economic Outlook 93 database. 0 20 40 60 80 100 120 140 160 0 20 40 60 80 100 120 140 160 Greece Italy Spain Portugal %% 2000 2007 2010 2012
  6. 6. 6 In a number of countries house prices went to record heights - and fell Source: OECD Housing Prices database. Real house prices 50 70 90 110 130 150 170 190 210 230 250 50 70 90 110 130 150 170 190 210 230 250 1999Q1=1001999Q1=100 Germany Italy Greece Ireland Portugal Spain
  7. 7. Progress in fiscal consolidation is substantial 7 Note: Quantities show euro area averages. Source: OECD Economic Outlook 93 database. 0 20 40 60 80 100 120 0 1 2 3 4 5 6 2006 2007 2008 2009 2010 2011 2012 2013 2014 % of GDP% of potential GDP General government cyclically-adjusted deficit, left axis General government gross financial liabilities, right axis
  8. 8. Relative unit labour costs within the area are now adjusting 8 75 80 85 90 95 100 105 110 115 120 75 80 85 90 95 100 105 110 115 120 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 1999=1001999=100 Germany France Spain Greece Portugal Italy Note: The figures shown are for the whole economy unit labour costs relative to unit labour costs in the rest of the euro area. Figures for 2013 and 2014 are projections. Source: OECD Economic Outlook 93 database.
  9. 9. 9 Source: OECD Economic Outlook 93 database. Intra-euro area trade imbalances have narrowed Trade balances, % of GDP -12 -10 -8 -6 -4 -2 0 2 4 6 -12 -10 -8 -6 -4 -2 0 2 4 6 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 % of GDP% of GDP Italy Spain Greece Portugal Germany
  10. 10. Sovereign bond spreads have fallen but some are still elevated and volatile 10 -10 0 10 20 30 40 50 11-07-2008 11-09-2008 11-11-2008 11-01-2009 11-03-2009 11-05-2009 11-07-2009 11-09-2009 11-11-2009 11-01-2010 11-03-2010 11-05-2010 11-07-2010 11-09-2010 11-11-2010 11-01-2011 11-03-2011 11-05-2011 11-07-2011 11-09-2011 11-11-2011 11-01-2012 11-03-2012 11-05-2012 11-07-2012 11-09-2012 11-11-2012 11-01-2013 11-03-2013 11-05-2013 11-07-2013 FRANCE ITALY SPAIN IRELAND PORTUGAL GREECE Yields relative to Germany, 10-year government bonds Source: Datastream.
  11. 11. Credit conditions have diverged across countries 11 2 2.5 3 3.5 4 4.5 5 5.5 6 6.5 DEU NLD FRA IRL ESP ITA PRT GRC % 2 4 6 8 10 12 14 16 18 20 22 DEU NLD FRA ESP PRT ITA IRL GRC % Cost of credit Average for 2013 first quarter Non-performing loans Reference period: end 2011 or end 2012 Notes: Cost of credit is defined as interest rate on new loans to non-financial corporations. Non-performing loans are shown as a share in total total loans. Source: ECB , IMF, OECD.
  12. 12. Significant policy challenges remain Significant policy challenges remain, comprising in particular: • Moving on with institutional reform at the level of the European Union, in particular with respect to common mechanisms for supervision, resolution and restructuring in the banking sector • Strengthening countries’ “ownership” in fiscal and economic surveillance processes • Continuing structural reform within countries that foster intra-area rebalancing, potential growth, employment creation and social inclusion • Continuing fiscal consolidation, based on credible medium-term plans linking improvements in public sector finances to growth-friendly and equitable structural reform. 12

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