[PPT] - General Report Bologna, 12/13 May 2016 Ferdinand Fichtner, PowerPoint Presentation

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General Report

Bologna, 12/13 May 2016 Ferdinand Fichtner, Christoph Große Steffen, Michael Hachula DIW Berlin

AIECE Spring Meeting 2016

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Overview: Discussion of General Report

14.30 – 14.45

Euro Area and Non Euro Area Short-term Outlook (DIW Berlin)

14.45 – 16.00

Discussion: Short-term Outlook

16.20 – 16.35

Risks to the Short-term Outlook (DIW Berlin)

16:35 – 17:00

Discussion: Risks

17:00 – 17:15

Fiscal Policy Environment (DIW Berlin)

17:15 – 18.00

Discussion: Fiscal Policy

9:00 – 9:10

Monetary Policy Environment (DIW Berlin)

9:10 – 9:25

ECB Monetary Policy (P. Karadeloglou, ECB)

9:25 – 10:00

Discussion: Monetary Policy

10:15 – 10:25

Focus on ‘Brexit’ Risk (DIW Berlin)

10:25 – 10:40

The UK Perspective on BREXIT (S. Kirby, NIESR)

10:40 – 10:55

Norwegian Experience (R. Hammersland, A. Benedictow, SSB)

10:55 – 11.15

Discussion: BREXIT

11:15 – 11:30

Challenges: Greece, Debt Crisis, European Architecture (DIW Berlin)

11:30 – 12:30

Discussion: Challenges

Bologna, 12/13 May 2016 2 AIECE Spring Meeting 2016: General Report

Thursday Friday

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Part 1 Euro Area and Non Euro Area Short-term Outlook

Bologna, 12/13 May 2016 3 AIECE Spring Meeting 2016: General Report

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Institutes’ assumptions show some heterogeneity

Bologna, 12/13 May 2016 4 AIECE Spring Meeting 2016: General Report

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Growth in European economies expected to stabilize

Bologna, 12/13 May 2016 5 AIECE Spring Meeting 2016: General Report

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Growth in the euro area stable at 2015 rates

Bologna, 12/13 May 2016 6 AIECE Spring Meeting 2016: General Report

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Low energy prices are most important driver of growth

Bologna, 12/13 May 2016 7 AIECE Spring Meeting 2016: General Report

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Weak external environment dampens considerably

Bologna, 12/13 May 2016 8 AIECE Spring Meeting 2016: General Report

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Unemployment decreases only gradually

Bologna, 12/13 May 2016 9 AIECE Spring Meeting 2016: General Report

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Weak investment, low inflation

Bologna, 12/13 May 2016 10 AIECE Spring Meeting 2016: General Report

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Guiding questions for discussion

Bologna, 12/13 May 2016 11 AIECE Spring Meeting 2016: General Report

Despite fairly high GDP growth rates projected for some of the European

countries, why is the unemployment rate decreasing only gradually?

What policy measures could contribute to an acceleration of investment

dynamics? What’s the role of the banking system in this context?

What is the effect of low interest rates on different parts of the economy?
What are the perspectives for the output gap in your countries?
Are price dynamics expected to accelerate beyond the fading influence of the

decline of commodity prices? How is core inflation expected to develop?

How do the ECB’s non-standard monetary policy measures spill over to non-

Euro area economies? What are the main implications for financial stability and growth?

Do you consider inequality and wealth distribution to be a severe problem for

growth in your country? If so, what can and what should be done about it?

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Part 2 Risks to the Outlook

Bologna, 12/13 May 2016 12 AIECE Spring Meeting 2016: General Report

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Biggest downside risks: China, BREXIT, deflation

Bologna, 12/13 May 2016 13 AIECE Spring Meeting 2016: General Report

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Refugee inflow expected to be positive for growth

Bologna, 12/13 May 2016 14 AIECE Spring Meeting 2016: General Report

Ordering corrected

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… in particular in the medium run

Bologna, 12/13 May 2016 15 AIECE Spring Meeting 2016: General Report

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Guiding questions for discussion

Bologna, 12/13 May 2016 16 AIECE Spring Meeting 2016: General Report

What are the most important downside risks to the projection of your country?
What are the most important upside risks to the projection of your country?
How is deflation in the euro area expected to affect the real economy?
What are the main risks associated with the low oil price?
What are the consequences of a re-introduction of border controls on the

economy in your country?

What policy measures are necessary to realize the expected gains from

migration – and can they be expected?

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Part 3 Fiscal Policy Environment

Bologna, 12/13 May 2016 17 AIECE Spring Meeting 2016: General Report

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Public finances are easing

Bologna, 12/13 May 2016 18 AIECE Spring Meeting 2016: General Report

Effect of refugee inflow on 2016 fiscal balance

Source: AIECE Institutes.

1
0.8
0.6
0.4
0.2

0.2 0.4 0.6 0.8 1 Austria Belgium Denmark Finland France Germany Greece Hungary Ireland Italy Netherlands Norway Poland Slovenia Spain Sweden Switzerland UK

6
3

3 6 Austria Belgium Finland France Germany Greece Ireland Italy Netherlands Slovenia Spain Denmark Hungary Poland Sweden UK Norway Switzerland Euro Area 2017 2016 2015

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But fiscal policy should be readjusted

Bologna, 12/13 May 2016 19 AIECE Spring Meeting 2016: General Report

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Guiding questions for discussion

Bologna, 12/13 May 2016 20 AIECE Spring Meeting 2016: General Report

When do you expect your country to meet the deficit rule of the SGP?
Why should governments engage in further bringing down public debt levels?
What are the risks for the projection of public finances?
Is fiscal policy focusing on the short or long-term in your country – and what

should it do?

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Part 4 Monetary Policy Environment

Bologna, 12/13 May 2016 21 AIECE Spring Meeting 2016: General Report

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Beyond zero rates and unconventional monetary policy?

Bologna, 12/13 May 2016 22 AIECE Spring Meeting 2016: General Report

Figure: Euro area inflation rate (monthly)

Source: European Central Bank.

0.8
0.6
0.4
0.2

0.2 0.4 0.6 0.8 1

Figure: Loans to Non-financial corporations

(total outstanding)

Source: European Central Bank.

2 2.5 3 3.5 4 4.5 5 2000-01 2000-10 2001-07 2002-04 2003-01 2003-10 2004-07 2005-04 2006-01 2006-10 2007-07 2008-04 2009-01 2009-10 2010-07 2011-04 2012-01 2012-10 2013-07 2014-04 2015-01 2015-10

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Interest rates are heading further downward

Bologna, 12/13 May 2016 23 AIECE Spring Meeting 2016: General Report

Figure: Long-term interest rates

(in percent)

Source: European Central Bank.

0.5 1 1.5 2 2.5 3 3.5 Germany Spain France Ireland Italy Portugal

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Asset purchases and TLTRO feed excess liquidity

Bologna, 12/13 May 2016 24 AIECE Spring Meeting 2016: General Report

TLTRO Asset purchases Excess liquidity

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Consensus view on stance of monetary policy

Bologna, 12/13 May 2016 25 AIECE Spring Meeting 2016: General Report

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Further action of the ECB: Is the toolbox empty?

Bologna, 12/13 May 2016 26 AIECE Spring Meeting 2016: General Report

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Where to go from here? Remaining measures & risks

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TLTRO2: modest effects anticipated

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Guiding questions for discussion: Monetary Policy

Bologna, 12/13 May 2016 29 AIECE Spring Meeting 2016: General Report

1.Noting that the inflation rate in the US is higher compared to the Euro area, what are the main reasons for this? 2.Why exactly are you sceptical about TLTRO II? Where is the money likely to go? 3.There are recent proposals to abolish the zero lower bound on interest rates. This could be done, for example, through abolishing currency such that negative interest rates could be implemented from a technical point. Do you think that this could prevent Europe from entering a liquidity trap?

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Part 5 Focus on BREXIT Risk

Bologna, 12/13 May 2016 30 AIECE Spring Meeting 2016: General Report

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Brexit considered unlikely, would affect the UK economy

Bologna, 12/13 May 2016 31 AIECE Spring Meeting 2016: General Report

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Boradly in line with polls and implied prob.

Bologna, 12/13 May 2016 32 AIECE Spring Meeting 2016: General Report

72 % of gamblers‘ money in the ‚Remain‘-camp weaker majority for ‚Remain‘ in polls

Source: The Economist

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Brexit has negative spillovers to EU countries

Bologna, 12/13 May 2016 33 AIECE Spring Meeting 2016: General Report

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Part 6 Challenges for Europe

Bologna, 12/13 May 2016 34 AIECE Spring Meeting 2016: General Report

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Greece and the Sovereign Debt Crisis: high uncertainty

Bologna, 12/13 May 2016 35 AIECE Spring Meeting 2016: General Report

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Architecture of the euro area remains incomplete

Bologna, 12/13 May 2016 36 AIECE Spring Meeting 2016: General Report

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Guiding questions for discussion: Challenges

Bologna, 12/13 May 2016 37 AIECE Spring Meeting 2016: General Report

1.Do you think that EU Refugee bonds are the right answer to the present influx

f migrants?

2.Concrete measures of fiscal coordination are highly disputed. In view of the high importance of this topic, what should be the next steps in this direction? 3.If a fiscal union within the Euro area is unlikely in the near future, what are necessary next steps instead?

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DIW Berlin — Deutsches Institut für Wirtschaftsforschung e.V. Mohrenstraße 58, 10117 Berlin www.diw.de

General Report

Bologna, 12/13 May 2016 Ferdinand Fichtner, Christoph Große Steffen, Michael Hachula DIW Berlin

AIECE Spring Meeting 2016

Overview: Discussion of General Report

Euro Area and Non Euro Area Short-term Outlook (DIW Berlin)

Discussion: Short-term Outlook

Risks to the Short-term Outlook (DIW Berlin)

Discussion: Risks

Fiscal Policy Environment (DIW Berlin)

Discussion: Fiscal Policy

Monetary Policy Environment (DIW Berlin)

ECB Monetary Policy (P. Karadeloglou, ECB)

Discussion: Monetary Policy

Focus on ‘Brexit’ Risk (DIW Berlin)

The UK Perspective on BREXIT (S. Kirby, NIESR)

Norwegian Experience (R. Hammersland, A. Benedictow, SSB)

Discussion: BREXIT

Challenges: Greece, Debt Crisis, European Architecture (DIW Berlin)

Discussion: Challenges

Thursday Friday

Part 1 Euro Area and Non Euro Area Short-term Outlook

Institutes’ assumptions show some heterogeneity

Growth in European economies expected to stabilize

Growth in the euro area stable at 2015 rates

Low energy prices are most important driver of growth

Weak external environment dampens considerably

Unemployment decreases only gradually

Weak investment, low inflation

Guiding questions for discussion

countries, why is the unemployment rate decreasing only gradually?

dynamics? What’s the role of the banking system in this context?

decline of commodity prices? How is core inflation expected to develop?

Euro area economies? What are the main implications for financial stability and growth?

growth in your country? If so, what can and what should be done about it?

Part 2 Risks to the Outlook

Biggest downside risks: China, BREXIT, deflation

Refugee inflow expected to be positive for growth

Ordering corrected

… in particular in the medium run

Guiding questions for discussion

economy in your country?

migration – and can they be expected?

Part 3 Fiscal Policy Environment

Public finances are easing

Effect of refugee inflow on 2016 fiscal balance

Source: AIECE Institutes.

But fiscal policy should be readjusted

Guiding questions for discussion

should it do?

Part 4 Monetary Policy Environment

Beyond zero rates and unconventional monetary policy?

Figure: Euro area inflation rate (monthly)

Figure: Loans to Non-financial corporations

Interest rates are heading further downward

Figure: Long-term interest rates

Asset purchases and TLTRO feed excess liquidity

TLTRO Asset purchases Excess liquidity

Consensus view on stance of monetary policy

Further action of the ECB: Is the toolbox empty?

Where to go from here? Remaining measures & risks

TLTRO2: modest effects anticipated

Guiding questions for discussion: Monetary Policy

Part 5 Focus on BREXIT Risk

Brexit considered unlikely, would affect the UK economy

Boradly in line with polls and implied prob.

72 % of gamblers‘ money in the ‚Remain‘-camp weaker majority for ‚Remain‘ in polls

Brexit has negative spillovers to EU countries

Part 6 Challenges for Europe

Greece and the Sovereign Debt Crisis: high uncertainty

Architecture of the euro area remains incomplete

Guiding questions for discussion: Challenges

1.Do you think that EU Refugee bonds are the right answer to the present influx

2.Concrete measures of fiscal coordination are highly disputed. In view of the high importance of this topic, what should be the next steps in this direction? 3.If a fiscal union within the Euro area is unlikely in the near future, what are necessary next steps instead?

Thank you!