Price and non-price competitiveness puzzle in the euro area Pavlos - - PowerPoint PPT Presentation

Price and non-price competitiveness puzzle in the euro area

Pavlos Karadeloglou European Central Bank

Project LINK meeting New York October, 2012

2

Outline

1. Competitiveness in euro area and euro area countries: developments since 1999. 2. Price competitiveness losses are reflected in worsening of exports and the CA developments. 3. Is it only price and cost competitiveness? 4. Concluding remarks.

3

Outline

1. Competitiveness in euro area and euro area countries: developments since 1999. 2. Price competitiveness losses are reflected in worsening of exports and the CA developments. 3. Is it only price and cost competitiveness? 4. Concluding remarks

4

Recently, the euro area has partially regained lost price competitiveness

Nominal and real effective exchange of the euro, relative export prices

(Indexed to the 1995-2012 average=100, quarterly data) Source: ECB. Note: The last observations refer to 2012Q3 for NEER-20, REER-20 (CPI) and 2012Q2 for REER-20 (ULTC) and relative export prices . Relative export prices are extra-euro area export prices divided by competitors’ export prices. A decrease indicates a loss in price competitiveness.

5

Over 1999 the divergencies at a country level are significant

Developments in HCIs

(ULCT-based, Including intra- and extra-trade; percentage change between 1999Q1 and 2012Q2) Source: ECB. Note: For the Euro area the REER-20 is used. A negative value indicates an increase in price or cost competitiveness. The HCIs are constructed using the same methodology and data sources that are used for the euro EERs.

6

Germany seems to be the best performer among the big countries

Developments in HCIs

(ULCT-based, 1999 =100) Source: ECB. Note: Latest observation refers to 2012Q2. A negative value indicates an increase in price or cost competitiveness.

7

Outline

1. Competitiveness in euro area and euro area countries: developments since 1999. 2. Price competitiveness losses are reflected in worsening of exports and the CA developments. 3. Is it only price and cost competitiveness? 4. Concluding remarks.

8

Current account divergences reflect competitiveness developments

Current account 2011

(% of GDP, annual data) Source: ECB. Note: Latest observation refers to 2011. A current account surplus increases a country's net foreign assets by the corresponding amount and a current account deficit does the reverse.

9

Export market shares

(index: 2000 = 100; annual data)

Recently, the euro area worsening of export market shares came to a halt, owing to a stabilisation in price competitiveness through 2009

Source: IMF DOTS. Note: Export market shares are measured as total exports of goods (extra) divided by world exports. Latest observation refers to 2011.

Relative export prices

(index: 1999 = 100; annual data) Source: AMECO. Note: Price deflator exports of goods and services (foreign trade weighted relative performance). A decrease means an improvement in price

• competitiveness. Latest observation refers to 2011.

10

At the euro area country level, export performance varies significantly…

Export market shares of selected euro area countries (intra + extra)

(index, 2000 = 100, annual data, seasonally adjusted) Source: IMF DOTS and Bank of Greece. Note: Export market shares are measured as total exports of goods (intra + extra) divided by world exports. Lastest observation refers to 2011.

11

…partly reflecting differences in price competitiveness

Relative export prices of selected euro area countries

(index, 1999 =100, annual data, seasonally adjusted) Source: AMECO. Note: Price deflator exports of goods and services (foreign trade weighted relative performance). A decrease means an improvement in price competitiveness. Latest observation refers to 2011.

12

Export performance relative to foreign demand: significant divergencies

Largest euro area countries

(in percentage points)

EU/IMF programme countries

(in percentage points) Source: ECB. Note: Latest observation refers to 2011. Source: ECB. Note: Latest observation refers to 2011.

13 13

Revealed comparative advantage in intermediate goods (imports)

(annual data)

Revealed comparative advantage

Source: ECB staff calculations. Note: A revealed comparative advantage larger than 1 indicates that a country is relatively more integrated in global value chains. Latest observation refers to 2011, except for SPAIN (2010).

14 14

Revealed comparative advantage in intermediate goods (exports)

(annual data)

Revealed comparative advantage

Source: ECB staff calculations. Note: A revealed comparative advantage larger than 1 indicates that a country is relatively more integrated in global value chains. Latest observation refers to 2011, except for SPAIN (2010). .

15 15

Extensive margin (products and partners)

(annual data)

Extensive margins

Source: ECB staff calculations. Note: The extensive margin is the count of the number of trade relations of a country: the product margin is the number of sectors in which a country

• exports. The partner margin is the numbers of countries to which a country exports. Each line in the chart shows the total number of partner-product

combinations in each country’s exports, it mean to measure a country’s export diversification, in terms of both destinations and sectors. Latest observation refers to 2010.

16

Outline

1. Competitiveness in euro area and euro area countries: developments since 1999. 2. Price competitiveness losses are reflected in worsening of exports and the CA developments. 3. Is it only price and cost competitiveness? 4. Concluding remarks.

Is it only price competitiveness?

• The divergence in trade performances across

countries can not solely be attributed to price and cost developments.

• We look for a metric for non-price factors

driving trade balance

• Try to disentangle the respective roles of price and

non-price factors to analyse trade balance developments.

17

Methodology

• We follow Aiginger (1997) to decompose trade

balance into the parts driven by price and non-price factors. NON PRICE FACTORS : Quality, product reputation and variety, availability and reliability of supplementary services and consumer preferences, efficiency of sales networks, unique placement in the global value chain geographic

• rientation, etc.

18

Methodology

• Our major contribution

– tackle the aggregation bias – complete decomposition of trade balance (natural resource endowments, services, price and non-price, re- exports and re-imports)

• Data

– United Nation’s COMTRADE HS-6 sectoral level (5000 sectors) – 61 economies over the period 1993-2010

19

Competitiveness Regimes

20

Lower Relative Export UV (UVXi < UVXworld) Higher Relative Export UV (UVXi > UVXworld) Trade Share Price‐driven competitiveness Price + Non‐price‐driven competitiveness Non‐price + Trade Share Structural Deficit Non‐price ‐ Price competitiveness deficit Price ‐

Trade Balance Decomposition

21

Euro Area aggregate

Note: Latest observation refers to 2010.

Trade Balance Decomposition

22

Greece

Note: Latest observation refers to 2010.

Trade Balance Decomposition

23

Germany

Note: Latest observation refers to 2010.

Trade Balance Decomposition

24

Euro Area countries 2010

Trade Balance Decomposition

25

United States

Note: Latest observation refers to 2010.

Trade Balance Decomposition

26

China

Note: Latest observation refers to 2010.

Caveats for this approach

• Not using individual product data products in a sector are not

completely homogenous.

• The database only contains data for goods (but service trade can

be very important).

• Not all countries report all trade at the 6-digit level ( cannot

decompose all the trade balance: have residual “unclassifiable”).

• Cannot distinguish purely demand-driven

developments from quantity competitiveness: – E.g. a cyclical collapse in domestic demand that leads to a strong reduction of imports across all goods could be picked up as an improvement in price and/or non-price competitiveness. – This could be relevant e.g. for Spain, where the strong fall in imports has been an important driver of the trade deficit reduction.

27

Conclusion

• The euro area has lost export market share due to loss of both price

and non-price competitiveness.

• Significant divergences between euro area countries reflecting

differences in price competitiveness.

• Not only exports market shares declined but we observe also

divergences in export performance relative to foreign demand.

• Non-prices competitiveness play an important role and the

decomposition of trade balance into its price/non price components is essential for tailor-made rebalancing policies.

28

Thank you for your attention!

29

Trade Balance Decomposition

30

Germany

‐4% ‐2% 0% 2% 4% 6% 8% 10% Net Non‐Price Net Price Net Exports of Energy Food and Raw Materials TB/GDP

Trade Balance Decomposition

31

Italy

‐5% ‐3% ‐1% 1% 3% 5% Net Non‐Price Net Price Net Exports of Energy Food and Raw Materials TB/GDP

Trade Balance Decomposition

32

Spain

‐10% ‐8% ‐6% ‐4% ‐2% 0% Net Non‐Price Net Price Net Exports of Energy Food and Raw Materials TB/GDP

Trade Balance Decomposition

33

Greece

Trade Balance Decomposition

34

Austria

‐5% ‐4% ‐3% ‐2% ‐1% 0% 1% 2% Net Non‐Price Net Price Net Exports of Energy Food and Raw Materials TB/GDP

Trade Balance Decomposition

35

Belgium

‐12% ‐7% ‐2% 3% 8% 13% Net Non‐Price Net Price Net Exports of Energy Food and Raw Materials TB/GDP

Trade Balance Decomposition

36

Cyprus

‐26% ‐21% ‐16% ‐11% ‐6% ‐1% 4% Net Non‐Price Net Price Net Exports of Energy Food and Raw Materials TB/GDP

Trade Balance Decomposition

37

Estonia

‐32% ‐27% ‐22% ‐17% ‐12% ‐7% ‐2% 3% Net Non‐Price Net Price Net Exports of Energy Food and Raw Materials TB/GDP

Trade Balance Decomposition

38

Ireland

‐7% ‐2% 3% 8% 13% 18% 23% 28% Net Non‐Price Net Price Net Exports of Energy Food and Raw Materials TB/GDP

Trade Balance Decomposition

39

Portugal

‐12% ‐10% ‐8% ‐6% ‐4% ‐2% 0% Net Non‐Price Net Price Net Exports of Energy Food and Raw Materials TB/GDP

Trade Balance Decomposition

40

Finland

‐7% ‐5% ‐3% ‐1% 1% 3% 5% 7% 9% 11% 13% Net Non‐Price Net Price Net Exports of Energy Food and Raw Materials TB/GDP

Trade Balance Decomposition

41

France

‐5% ‐4% ‐3% ‐2% ‐1% 0% 1% 2% Net Non‐Price Net Price Net Exports of Energy Food and Raw Materials TB/GDP

Trade Balance Decomposition

42

Luxembourg

‐14% ‐12% ‐10% ‐8% ‐6% ‐4% ‐2% 0% 2% Net Non‐Price Net Price Net Exports of Energy Food and Raw Materials TB/GDP

Trade Balance Decomposition

43

The Netherlands

‐5% ‐3% ‐1% 1% 3% 5% 7% 9% Net Non‐Price Net Price Net Exports of Energy Food and Raw Materials TB/GDP

Trade Balance Decomposition

44

Slovak Republic

‐8% ‐6% ‐4% ‐2% 0% 2% 4% 6% 8% 10% Net Non‐Price Net Price Net Exports of Energy Food and Raw Materials TB/GDP

Trade Balance Decomposition

45

Slovenia

‐5% ‐4% ‐3% ‐2% ‐1% 0% 1% Net Non‐Price Net Price Net Exports of Energy Food and Raw Materials TB/GDP

Trade Balance Decomposition

46

Malta

‐25% ‐20% ‐15% ‐10% ‐5% 0% 5% Net Non‐Price Net Price Net Exports of Energy Food and Raw Materials TB/GDP

Trade Balance Decomposition

47

Bulgaria

‐19% ‐14% ‐9% ‐4% 1% 6% Net Non‐Price Net Price Net Exports of Energy Food and Raw Materials TB/GDP

Trade Balance Decomposition

48

Czech Republic

‐8% ‐6% ‐4% ‐2% 0% 2% 4% 6% 8% Net Non‐Price Net Price Net Exports of Energy Food and Raw Materials TB/GDP

Trade Balance Decomposition

49

Denmark

‐1% 0% 1% 2% 3% 4% 5% 6% Net Non‐Price Net Price Net Exports of Energy Food and Raw Materials TB/GDP

Trade Balance Decomposition

50

United Kingdom

‐7% ‐6% ‐5% ‐4% ‐3% ‐2% ‐1% 0% 1% Net Non‐Price Net Price Net Exports of Energy Food and Raw Materials TB/GDP

Trade Balance Decomposition

51

Hungary

‐12% ‐7% ‐2% 3% 8% 13% Net Non‐Price Net Price Net Exports of Energy Food and Raw Materials TB/GDP

Trade Balance Decomposition

52

Lithuania

‐18% ‐13% ‐8% ‐3% 2% 7% 12% Net Non‐Price Net Price Net Exports of Energy Food and Raw Materials TB/GDP

Trade Balance Decomposition

53

Latvia

‐25% ‐20% ‐15% ‐10% ‐5% 0% 5% Net Non‐Price Net Price Net Exports of Energy Food and Raw Materials TB/GDP

Trade Balance Decomposition

54

Poland

‐12% ‐10% ‐8% ‐6% ‐4% ‐2% 0% 2% Net Non‐Price Net Price Net Exports of Energy Food and Raw Materials TB/GDP

Trade Balance Decomposition

55

Romania

‐20% 30% 80% 130% 180% Net Non‐Price Net Price Net Exports of Energy Food and Raw Materials TB/GDP

Trade Balance Decomposition

56

Sweden

‐4% ‐2% 0% 2% 4% 6% 8% Net Non‐Price Net Price Net Exports of Energy Food and Raw Materials TB/GDP

57

Export performance relative to foreign demand cumulated from 1999 (1I)

Export performance relative to foreign demand cumulated from 1999

(in percentage points)

Share of extra-euro area exports in total exports

(in percent) Source: ECB. Note: Countries are grouped in descending order for the period 1999-07. Latest observation refers to 2011. Source: ECB. Note: Countries are grouped in descending order for the period 1999-07. Latest observation refers to 2011.