Euro area economic situation and the foundations for growth

Presentation by Mario Draghi President of the European Central Bank at the Euro Summit Brussels, 14 March 2013

Economic situation
Euro area real GDP
(annual % growth rate)
4 3 2 1 0 1 2 3 4 5 6 2007 2008 2009 2010 2011 2012 4 3 2 1 0 1 2 3 4 5 6

Latest data: 2012Q4. Sources: Eurostat.

Economic situation
Euro area unemployment
(% of labour force)
20 18 16 14 12 10 8 6 4 2 0 euroarea(2007) euroarea(2013)
26.4 26.2

20

January2007

January2013
18 16 14 12 10 8 6 4 2 0

Latest data: January 2013 (December 2012 for Greece and Estonia). Source: Eurostat.

External imbalances
Current account balance
(% of GDP)
20% 15% 10% 5% 0% 5% 10% 15% 20% 2000

AT GR

BE IE

DE IT

LU PT

NL Surplus

ES Deficit

FR

20% 15% 10% 5% 0% 5% 10% 15% 20% 2012

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Note: For improved readability, this and subsequent charts only show the countries listed above and do not include FI, EE, SK, SI, CY, MT. Countries are assigned to "External surplus/deficit" group if they had a current account surplus/deficit in 2007 (the last pre-crisis year). Surplus countries in blue, deficit countries in red. Annual data (smoothed lines). Source: AMECO.

Credit situation
Bank credit to firms
(annual rate of growth)
6 6

euroarea
8 01/2010 07/2010

DE
01/2011

ES
07/2011

FR
01/2012

IT
07/2012 8 01/2013
5

Notes: MFI loans to non-financial corporations adjusted for loan sales and securitisation. 3-month moving average. Latest observation January 2013. Source: ECB.

Fiscal situation
Government deficits (2012)
(% of GDP)
6 5 4 3 2 1 0
0.2 7.5 6.7 6.7

General government debt (2012)

(% of GDP)
6 140
162

140 Debt>90%
90%>Debt>60%

Deficit>3%

3%>Deficit>2%

Deficit<2% 5 120 4 Maastricht criterion 3 60 2 40 100 80

Debt<60% 120 100 80 Maastrichtcriterion 60 40 20 0

1 20 0 0

Note: Budget balance is corrected for capital injections into banks. Source: European Commission 2013 Winter Economic Forecast.

Economic situation
Euro area real GDP
(annual % growth rate)
4 3 2 1 0 1 2 3 4 5 6 2007 2008 2009 2010 2011 2012 2013 2014 4 3 2 1 0 1 2 3

Netexports

Domesticdemand
2 2 2 2 2 2 2 2

GDP

4.0 -6.0 ECBprojectionrange

4 5 6

Latest data: 2012Q4. Sources: Eurostat, ECB, EC.

Foundations for growth

Where does growth come from?
- strengthening of global demand - supportive monetary policy anchoring price stability - and restoring :

Confidence Credit

Competitiveness
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The competitiveness problem

Wage and productivity developments
Compensation
145 140 135 130 125 120 115 110 105 100 145 122 120 118 116 130 125 120 115 110 105 100 114 112 110 108 106 104 102 100

Productivity
122 140 135

Compensationperemployee (deficitcountries) Compensationperemployee (surpluscountries)

Productivity (deficitcountries) Productivity (surpluscountries)

120 118 116 114 112 110 108 106 104 102 100

Note: 1999 = 100. Total economy. Productivity is defined as real GDP per employee. GDP-weighted average by country group. Annual data (smoothed lines). Source: AMECO.

Country perspective (selection)

Wage and productivity developments
Austria
150 145 140 135 130 125 120 115 110 105 100 1999

Germany
150 145 150 145 140 135 130 125 120 115 110 105 100 1999 150

Portugal
150 145 140 135 130 125 120 115 110 105

Compensationperemployee Productivity

Compensationperemployee Productivity

Compensationperemployee Productivity

150 145 140 135 130 125 120 115 110 105 100

145 140 135 130 125 120 115 110 105 100

140 135 130 125 120 115 110 105 100

100 1999

2001

2003

2005

2007

2009

2011

2001

2003

2005

2007

2009

2011

2001

2003

2005

2007

2009

2011

France
150 145 140 135 130 125 120 115 110 105 100 1999 150

Spain
150 145 140 135 130 125 120 115 110 105 100 1999 150
150 145 140 135 130 125 120 115 110 105 100 1999
145 140 135 130 125 120 115 110 105 100

Italy
150

Compensationperemployee Productivity

Compensationperemployee Productivity

145 140 135 130 125 120 115 110 105 100

Compensationperemployee Productivity

145 140 135 130 125 120 115 110 105 100

2001

2003

2005

2007

2009

2011

2001

2003

2005

2007

2009

2011

2001

2003

2005

2007

2009

2011

Note: 1999 = 100. Total economy. Productivity is defined as real GDP per employee. Annual data (smoothed lines). Source: AMECO.

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Profitability problems
Business margins
(%, national accounts)
34 34
110 108 106 104 110 108 106 104 102 100 98 96 94 2012

Negotiated wages and employment

Ext.surplusgroup
32 30 28 26 24 22 20

Ext.deficitgroup

32 30 28

102

26
100

24 22 20

98 96 94 2008

2009

2010

2011

Net operating surplus / value added for nonfinancial corporations (4-quarter averages) Latest observation: 2012Q3. Sources: Eurostat, ECB. Right-hand chart: Note: 1999 = 100. GDP-weighted average by country group. Due to data availability, External surplus group does not include Luxembourg, and External deficit group does not include Greece and Ireland. Annual data (smoothed lines). Source: Eurostat.

NegotiatedwagesExternalsurpluscountries EmploymentExternalsurpluscountries NegotiatedwagesExternaldeficitcountries 94 EmploymentExternaldeficitcountries 94

2008

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Confidence returning
Corporate bond yields
(percentage points)
8 First3yr LTRO OMTannounced 8

Government bond yields

(percentage points)
7 OMTannounced 15

6.5

Returnof confidence

Returnof confidence

13

6
6

11

5.5
5 5

5
4 4

4.5

Mediumgradebonds
3 Jul11 3 Oct11 Jan12 Apr12 Jul12 Oct12 Jan13

Spain Portugal(rhs)
Jun12 Aug12

Italy Ireland(rhs)
Oct12 Dec12

4 Apr12

3 Feb13

Note: EMU all maturities. Monthly data; Latest data: February 2013. Sources: BofA Merril Lynch, Datastream and ECB calculations.

Note: 3-month moving average of monthly data. Latest data: February 2013. Sources: Thomson Reuters and ECB calculations.

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Problems for smaller firms

Interest rate on new loans to firms
(Loans up to EUR 1 million to firms, percent per annum)
7 7

Germany
2 2008 2009 2010

Spain

France
2011

Italy
2 2012 2013

Source: ECB.

13

Fiscal progress
Government deficits in 2009 and 2012
(% of GDP)
12
15.6

12

2009
10

2012
10

2
0.2

Note: Budget balance is corrected for capital injections into banks. Source: European Commission's winter 2013 economic forecast and ESCB.

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Conclusions
1. Review of product and labour markets to see whether they are compatible with participation in monetary union 2. Reform contracts for countries with pressing competitiveness problems. 3. Full implementation of Single Market legislation

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