A statistical overview of the economic situation in the euro area

By Gian Luigi Mazzi and Rosa Ruggeri Cannata

Florence , 25 April 2014

EUI-nomics 2014

Eurostat

Outline

� Latest PEEIs figures

� GDP growth estimates for the first quarter 2014

� EuroMind

� Euro area institutional forecast

� Euro area cyclical monitoring

� Macro-economic imbalances procedure

Eurostat

Latest PEEIs figures

Introductory remarks

• PEEIs: a tool for short-term economic monitoring based on official statistics

• Picture for the euro area still very incomplete for 2013

• few monthly data

• no quarterly data

• Updated picture for the euro area

- combining official statistics and econometric techniques

Eurostat

Latest PEEIs figures

2012q3 2012q4 2013q1 2013q2 2013q3 2013q4

GDP% (Q/Q-1) -0,2 -0,5 -0,2 0.3 0.1 0.3% (Q/Q-4) -0,7 -1,0 -1,2 -0,6 -0,3 0,5

Employment % (Q/Q-1) -0.2 -0,3 -0,4 0,0 0,0 :% (Q/Q-4) -0,6 -0,7 -1,0 -1,0 -0,8 :

2013m10 2013m11 2013m12 2014m1 2014m2 2014m3

HICP % (M/M-1) -0,1 -0,1 0,3 -1,1 0,3 1,0% (M/M-12) 0,7 0,9 0,8 0,8 0,7 0,5

PPI % (M/M-1) -0,4 -0,1 0,2 -0,3 -0,2 :% (M/M-12) -1,3 -1,2 -0,8 -1,4 -1,7 :

Import price % (M/M-1) -0,9 0,0 0,0 -0,4 -0,1 :% (M/M-12) -2,9 -2,7 -2,2 -2,6 -2,9 :

IPI % (M/M-1) -0,6 1,6 -0,3 0,0 0,2 :% (M/M-12) 0,4 2,7 1,2 1,6 1,7 :

Retail trade % (M/M-1) -0,4 1,1 -1,2 1,0 0,4 :% (M/M-12) -0,4 1,4 -0,4 0,8 0,8 :

Unemployment rate % 11,9 11,9 11,9 11,9 11,9 :

ESI Index 98,1 98,8 100,4 101,0 101,2 102,4

Eurostat

Latest PEEIs figures: some comments

• Very low inflation rate constantly below 1.0 %

• Stable unemployment rate at 11.9%

• Very uncertain path of Industrial Production Index

• Regular improvement of the economic sentiment indicator above 100% since December 2013

Eurostat

GDP growth estimates for the first quarter 2014

• Eurostat estimates for the Euro area GDP growth based on 3 competing models

• Small-scale factor model with soft data only

• Small-scale factor model with hard and soft data

• Bridge model with hard and soft data

• Comparative analysis with some external leading indicators freely available

• Euroframe

• EuroCoin

• IRC

Eurostat

GDP growth estimates for the first quarter 2014

Eurostat factor model (soft data)

0.40

Eurostat factor model (hard and soft data)

0.38

Eurostat Bridge model (hard and soft data)

0.47

Euroframe 0.595

EuroCoin 0.35

IRC 0.48

Eurostat

GDP growth estimates for the first quarter 2014: some comments

• Large consensus among various indicators

• Only Euroframe produces higher estimates than the remaining indicators

• Eurostat models show a very small range of variation from 0.38% to 0.47%

• The GDP growth for the first quarter should be likely between 0.40% and 0.50 %

Eurostat

EuroMind

• Monthly indicator of economic activity

• Proxy of GDP

• Combining Stock and Watson approach with temporal disaggregation in the state-space framework

• Monthly EuroMind estimates calculated by aggregation of all output and expenditure sides component: reconciliation obtained by weighted averages of the two monthly estimates

Eurostat

EuroMind chain-linked volumes

Eurostat

Monthly growth rates

Eurostat

Yearly growth rates

Eurostat

EuroMind extensions

• EuroMind-S: more coincident version of EuroMind based on a two factor Stock and Watson model where one factor models the effects of qualitative information

• EuroMind-C: medium size factor model simultaneously modelling euro area and largest economies

• EuroMind-B: back calculated version of EuroMind to 1970

• No back calculation of components available

• EuroMind-Gap: euro area output estimates derived from EuroMind by means of a state-space modelling of trend and cycle

• Going beyond EuroMind point estimates • Constructing density estimates for EuroMind and EuroMind-S

Eurostat

EuroMind-S chain-linked volumes

590000,0

600000,0

610000,0

620000,0

630000,0

640000,0

650000,0

660000,0

670000,0

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ine

d 2

00

0 p

rice

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EuroMInd-S

EuroMInd-S

Lower 95%

Upper 95%

Eurostat

Monthly growth rates

Eurostat

Yearly growth rates

Eurostat

Growth rates: comparison among indicators

------------------------------------------------- 2013 ----------------------------------------------

--------- 2014 ---------

Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec Jan Feb------------------------------------------ variations over previous period -------------------------------

-----------------

Quarterly GDP

- -0.20 - - 0.30 - - 0.10 - - 0.30 - -

EuroMind 0.00 0.06 0.18 0.09 0.10 -0.12 0.27 -0.01 0.00 0.34 -0.10 0.14EuroMind

-S 0.03 0.10 0.09 0.20 0.05 -0.12 0.02 0.03 -0.02 0.31 -0.04 0.35 0.05---------------------------------- variations over same period of previous year --------------------

--------------------

Quarterly GDP

- -1.20 - - -0.60 - - -0.30 - - 0.50 - -

EuroMind -1.11 -1.18 -0.67 -0.70 -0.42 -0.53 -0.59 0.07 0.19 0.69 0.68 1.22EuroMind

-S -1.13 1.13 -0.80 -0.57 -0.41 -0.53 -0.38 0.05 0.22 0.68 0.67 1.22 1.24

Eurostat

EuroMind comments

• Signals of recovery shown by EuroMind at the beginning of 2014

• On monthly basis: January 2014 +0.41%

• On yearly basis: January 2014 +1.22%

• Positive trend confirmed by EuroMind-S for February 2014

• On monthly basis: February 2014 +0.05%

• On yearly basis: February 2014 +1.24%

• Standard errors of the estimates increasing for the latest periods

• Higher degree of volatility of some monthly statistics-Industrial production Index

• Persistent effects of the recent crisis

Eurostat

Euro area institutional forecastMain sources

• European commission: Winter 2014 forecast

• OECD: Economic outlook volume 2013/2

• ECB: March 2014 ECB staff macro-economic projections for the euro area

• IMF: WEO update 14 April 2014

Eurostat

Euro area institutional forecast

Eurostat

Euro area institutional forecast: some comments

• Quite good consensus among institutional forecasts

• Some differences also due to the different timing of the forecast publication

• No deflationary risk but persistency of a very low inflation

• Stable GDP growth but still moderate

• Stable unemployment at very high rates

Eurostat

Euro area cyclical monitoring

• Euro area dating: business, growth, and acceleration cycle

• non-parametric dating rule

• Euro area system for turning point detection: three coincident indicators

• BCCI: Business Cycle Coincident Indicator

• GCCI: Growth Cycle Coincident Indicator

• ACCI: Acceleration Cycle Coincident Indicator

Eurostat

Euro area cyclical monitoring

• BCCI: averaging probability recessions returned by univariate Markov switching models fitted to each of the three component series: unemployment, industrial production index, new car registrations

• GCCI: averaging probability recessions returned by univariate Markov switching models fitted to each of the five component series: industrial production index, construction confidence indicator, financial situation of households during the last 12 months, imports of intermediate goods, employment expectations

• ACCI: recession probability returned by the Markov switching model fitted to the Economic Sentiment Indicator

Eurostat

Euro area cyclical monitoringMS-VAR GCCI and MS-VAR BCCI

• MSIH(4) – VAR(0) model fitted on 4 variables

• 1) Industrial Production Index (differenced over 6 months)

• 2) Unemployment Rate (inverted diff. over 1 month)

• 3) New Passenger Car Registrations (diff. over 3 months)

• 4) Employment Expectations (diff. over 1 month)

• Both indicators jointly obtained as a by-product of model parameters estimation:

• MS-VAR BCCI � filtered probabilities of the first regime of the state-variable (regimes of the latent Markov-chain are sorted in ascending order of the state-dependent intercept);

• MS-VAR GCCI � sum of filtered probabilities of the first and second regimes.

Eurostat

Euro area cyclical monitoring

Advantages and drawbacks of multivariate approach versus univariate one

• Automatic fulfilment of the ABCD sequence

• Higher timeliness

• Slight increase of the Type-II error for the MS-VAR-GCCI

Eurostat

Euro area cyclical monitoringACCI

Eurostat

Euro area cyclical monitoringMS-VAR BCCI

Eurostat

Euro area cyclical monitoringMS-VAR GCCI

Eurostat

Economic Cycle Coincident indicator

Peak Trough Peak Trough Peak Trough

Provisional Dating of the Acceleration Cycle

2006 Q2 2009 Q1 2010 Q2* - - -

Acceleration Cycle

ACCI June 2006

March 2009

December 2010

December 2011

March 2012

October 2012

Provisional Dating of the Growth Cycle

2008 Q1 2009 Q3 2011 Q2* - - -

Growth Cycle MS-VAR GCCI

December 2007

September 2009

May 2011 - - October 2013*

Indirect MS-VAR GCCI

November 2007

July 2009 July 2011 - - April 2013

Provisional dating of the Business Cycle

2008 Q1 2009 Q2 2011 Q3* - - -

Classical Business Cycle

MS-VAR BCCI

April 2008 September 2009

July 2011 - - May 2013

Indirect MS-VAR BCCI

June 2008

June 2009

- - - -

Eurostat

Euro area cyclical monitoring Member countries extension

• Non-parametric chronologies for BCCI and GCCI in progress for member states

• Already available for 11 countries

• Coincident turning point indicators for growth cycle and business cycle for member states in progress

• Based on MS-VAR only

• Already available for 7 countries

• Full coverage of the euro area expected by end of 2014

Eurostat

Euro area cyclical monitoring Models summary by country

Country Model Recessions Slowdowns

Variables(differentiation order)

IPI URBUI

LIND

CONS

RETA

Belgium MSI(4)-VAR(0) R1 R1+R2 6 3 6 3 - 3

France MSIH(4)-VAR(0) R1 R1+R2 6 1 3 - 1 12

Germany MSIH(4)-VAR(0) R1 R1+R2 3 3 3 - 6 12

Italy MSIH(5)-VAR(0) R1 R1+R2 3 3 - 12 12 3

Netherlands MSIH(4)-VAR(0) R1 R1+R2 12 - 6 3 1 1

Portugal MSI(5)-VAR(0) R1+R2 R1+R2+R3 6 - 3 3 12 1

Spain MSIH(4)-VAR(0) R1 R1+R2 12 12 3 6 12 -

Eurostat

PeakTrough Peak Trough Peak

Trough Peak Trough Peak

Trough Peak Trough

GermanyGrowth Cycle 04/01 05/05 05/08 07/ 09 10/11 03/13Business Cycle 11/ 02 04/03 11/08 06/09

FranceGrowth Cycle 11/00 08/03 09/07 08/09 08/11 08/13Business Cycle 07/08 05/09

ItalyGrowth Cycle 10/01 08/03 12/07 06/09 07/11 04/13Business Cycle 01/03 05/03 12/07 04/09 08/11 04/13

SpainGrowth Cycle 04/01 10/03 09/07 11/09 07/10 08/13Business Cycle 03/ 08 11/09 07/11 04/13

the Netherlands

Growth Cycle 02/01 10/03 06/08 12/09 03/11 02/13Business Cycle 10/08 12/09 03/11 10/11

BelgiumGrowth Cycle 08/00 08/03 02/05 09/05 09/07 09/09 05/11Business Cycle 10/01 12/01 09/08 04/09 05/12 06/12

PortugalGrowth Cycle 07/98 05/03 10/04 09/05 06/06 07/06 07/07 05/09 07/10 07/13Business Cycle 01/02 05/03 07/05 08/05 06/08 05/09 10/10 03/12

Eurostat

Finland

Growth Cycle

2000Q3

2003Q2

2008Q1

2009Q3

2011Q4

Business Cycle

2008Q1

2009Q2

2011Q4

Austria

Growth Cycle

2000Q2

2003Q4

2008Q1

2009Q3

2011Q2

Business Cycle

2008Q1

2009Q2

Greece

Growth CycleBusiness Cycle

2008Q3

Ireland

Growth Cycle

2000Q3

2004Q3

2007Q4

2009Q4

2011Q4

2013Q1

Business Cycle

2007Q4

2009Q4

2012Q2

2013Q1

Peak Trough Peak TroughPeak Trough Peak Trough Peak Trough

Peak

Trough

Eurostat

Euro area cyclical monitoring: some comments

• Since beginning of 2013, euro area and the majority of member states went out from the recession and slowdown phases

• In the period 2011-2013, Germany, France and Austria experienced only a slowdown phase of the growth cycle but not a recessionary phase of the business cycle

• Finland didn't reach yet a trough for the business cycle and the growth cycle

• Belgium didn't reach yet a trough for the growth cycle

Eurostat

Euro area cyclical monitoring: some comments (cont.)

• With the global financial and economic crisis synchronisation across euro area member countries started to decrease

• Currently, member countries turning points are neither well synchronised nor well diffused

• Tricky situation since an optimal currency area requires an high degree of synchronisation across its members

Eurostat

MIP Headline Indicators Scoreboard

External Imbalances

•Balance of Payments

• Current account

• Net international investment

•Competitiveness

• Real effective exchange rate (REER)

• Share of world exports

• Nominal unit labour cost

36

Internal Imbalances

• House price developments

• Private credit flow

• Private debt

• General government debt

• Unemployment rate

plus

• Total financial sector liabilities

(since second exercise)

Eurostat

Scoreboard– flashing indicators

IE 6 IDR - imbalances (just out of

programme) IT 3 IDR - Excessive Imbalances

ES 6 IDR -imbalances UK 3 IDR -imbalances

CY 6 programme HR 3 IDR - Excessive Imbalances

PT 6 programme SE 3 IDR -imbalances

EL 5 programme EE 2

NL 5 IDR -imbalances SI 2 IDR - Excessive Imbalances

DE 4 IDR -imbalances SK 2

FR 4 IDR -imbalances BG 2 IDR -imbalances

LU 4 IDR -No imbalances DK 2 IDR -No imbalances

HU 4 IDR -imbalances LV 2

BE 3 IDR -imbalances LT 2

MT 3 IDR -No imbalances PL 2

AT 3 RO 2 programme

FI 3 IDR -imbalances CZ 1

Eurostat

Macro-economic imbalance procedure – In-depth reviews (IDRs) 2014

• 17 countries under IDR: 16 announced in November plus IE exiting the programme

• Excessive Imbalances: HR, IT, Sl

• Imbalances for 11 out of 17

• No imbalances : DK, MT, LU (first exercise)

• Specific monitoring of policy implementation for:

HR, IT, Sl and IE, ES and FR

• SGP: for FR and SI risk of non-compliance with 2014 budgetary target

Eurostat

Reading the scoreboard

• At least one indicator was outside the thresholds for all MSs (without CZ, all MSs at least 2)

• 6 out of 11 is the maximum number of flashing indicators (7 in the Scoreboard 2011 as published in 2013)

• For RO, under financial assistance programme, only 2 indicators are flashing: CA and NIIP

• Some indicators are no flashing at all: HPI yoy, private sector credit flow, total financial sector liabilities yoy

Eurostat

40

Reading the scoreboard (cont.)

• The scoreboard is a set of interlinked indicators: nosingle indicator can capture all potential risks

• The number of flashes is not the key criteria

• The severity of a breach of a threshold can beconsidered

• The analysis is based on a larger set of indicators

• Evolution over time has to be analysed too

Eurostat

Thank you for your attention!

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