Monetary Policy and the Economy Q3/11

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• Monetary Policy and the Economy Q3/11 (PDF, 1.2 MB) September 2011.

Studies and Analyses

• Growth Weakens Worldwide (PDF, 832 kB) Fenz, Schreiner, Silgoner. Fenz, Schreiner, Silgoner – Monetary Policy and the Economy Q3/11 Substantial data revisions have shown that the U.S. recession in 2008 to 2009 was far more pronounced than originally estimated, and that the recovery has been slower than previously assumed. Leading indicators signal that growth will stay weak in the second half of 2011. With key interest rates already at a low level, monetary policymakers have resorted to new nonstandard measures to support the economy. Japan’s economy has largely recovered from the severe consequences of the earthquake in March 2011. The reconstruction activities have given Japan’s economy a boost, and global production chains have been largely reestablished. Japan’s economic growth is likely to enter positive territory again already in the second half of 2011. For 2011 as a whole, the IMF sees Japanese GDP declining by 0.5%. Additionally, the strong appreciation of the Japanese yen may affect export growth. While China’s economic growth has lost some steam, it will still come to some 9% in 2012. Euro area growth slackened noticeably in the course of the first half of 2011. In the second quarter, real GDP edged up by only 0.2% on the previous quarter. Consumer spending diminished, and exports became the mainstay of growth. Euro area economic growth is anticipated to stay slow in the third quarter. Conditions in the labor market have been improving only hesitantly. The continued tension in the government bond market is creating uncertainty. Whereas Ireland’s efforts to consolidate its government finances have resulted in a decline in yield spreads, the yields on Greek sovereign bonds rose to new heights in September 2011 following reports that the results of Greece’s consolidation efforts have been insufficient. In recent months uncertainties about the economic prospects in EU Member States in Central, Eastern and Southeastern Europe (CESEE) heightened significantly. The slowdown in growth in the second quarter of 2011 and the publication of adverse economic data for both Europe as a whole and the world economy lead to activity forecasts for the region having been revised downwards since early summer 2011. Price pressures, which were comparatively high in the first six months of 2011, passed their peak in the summer. In various countries the external position has gradually deteriorated of late. Thus the crisis-induced cyclical component of current account adjustment is slowly losing significance. The Austrian economy continued to expand at a fairly robust pace in the first half of 2011 and, even at 0.7% growth in the second quarter, significantly outperformed Germany and the euro area as a whole. Meanwhile, however, there have been increasing signs of a sudden and substantive loss of economic momentum from mid-2011 onward. The weaker external environment and a high level of uncertainty in the corporate sector against the backdrop of the sovereign debt crisis have caused export and investment, previously the key growth drivers, to cool off visibly. For 2011 as a whole, GDP growth is still expected to average close to 3% given the strong start into the year. The outlook for growth in 2012, however, is rather weak, with the latest GDP growth projections, released in September 2011, lying within a range of 0.8% (Austrian Institute of Economic Research – WIFO) to 1.3% (Institute of Advanced Studies – IHS). en global outlook, euro area, Central, Eastern and Southeastern Europe, Austria E2, E3, O1 Sep 30, 2011, 12:00:00 AM

• Literature Review on the Economic Effects of the Euro on Austria (PDF, 936 kB) Beer. Beer – Monetary Policy and the Economy Q3/11 The possible impact of the euro on Austria has been widely discussed, as will be shown in this literature review, which focuses above all on the impact of the euro on inflation, foreign trade and economic growth. Not surprisingly, it has been quite difficult to quantify the (specific) impact of the euro, so that the academic literature contains only few hard-and-fast statements about the currency’s impact on Austria. According to the findings of the literature, the purely economic impacts of the single currency appear not to have been very large – other European integration projects that partly relate to monetary union appear to have had a stronger influence on Austria’s economy. en Economic and Monetary Union, inflation, international trade E31, E42, F40 Sep 30, 2011, 12:00:00 AM

• Austria’s Manufacturing Competitiveness (PDF, 1.3 MB) Ragacs, Resch, Vondra. Ragacs,, Resch, Vondra – Monetary Policy and the Economy Q3/11 This study discusses Austria’s manufacturing competitiveness and its influence on changes in the export market shares of domestic manufacturers. We first analyze price competitiveness over time and then conduct a constant-market-shares analysis in order to attribute changes in the export market shares of domestic manufacturers to their competitiveness on the one hand and international demand patterns on the other. Austria’s manufacturing industry seized the opportunity to expand to the east when the markets in Central, Eastern and Southeastern Europe (CESEE) opened up. Against this backdrop, domestic manufacturers were able to improve their price competitiveness between 1995 and 2004. They also gained export market shares from 2000 onward but lost some ground in 2005 and 2006. Since then, market shares and price competitiveness have remained broadly unchanged, which means that Austria has in fact done better than most other euro area countries. By historical comparison, the impact of the financial and economic crisis on Austrian manufacturers’ export market shares and their competitiveness remained limited. en international competitiveness, Austrian manufacturing, CMSA F14, L6 Sep 30, 2011, 12:00:00 AM

• European Financial Supervision: The Long Road to Reform (PDF, 492 kB) Pointner, Wolner-Rößlhuber. Pointner, Wolner-Rößlhuber – Monetary Policy and the Economy Q3/11 The financial crisis has shown the inadequacy of financial market regulation and supervision in the EU. As the integration of Europe’s financial market progressed, market participants continued to be supervised nationally and the scope of regulation remained mainly limited to microprudential aspects. Leading experts therefore called for financial supervision to be integrated at EU level and for regulators to place a greater emphasis on systemic risk. Following lengthy negotiations, the Council of the European Union and the European Parliament have since approved a reform based on proposals made by the European Commission. The legislative process for implementing the reform – in fact a good example of how legislative decisionmaking procedures work under the provisions of the Lisbon Treaty – highlighted the political interests of the parties involved and the differences between them. The new supervisory architecture that came into force on January 1, 2011, was designed to sustain financial stability. en financial regulation, bank supervision, European decision making E44, F36, G28 Sep 30, 2011, 12:00:00 AM

• Event Wrap-Ups (PDF, 372 kB) Summer – Monetary Policy and the Economy Q3/11 en Sep 30, 2011, 12:00:00 AM