2. European Sovereign Debt Crisis:
Still Not Contained
PETR ZEMCIK, DIRECTOR
Economic Outlook Conference, May 9-10, 2012
3.
4. Global Business Cycle Status
April 2012
Expansion
Recovery
At risk
Source: Moody’s Analytics In recession
4
5. Fiscal Burden Increases
General government gross debt, % of GDP
Greece
Italy
Ireland
2001
Portugal 2011E
Belgium
Euro area
France
U.K.
Germany
Spain
Netherlands
0 50 100 150 200
Sources: European Commission, Moody’s Analytics
5
6. European Firewalls May Not Suffice
How the EFSF and ESM Differ
EFSF ESM
Private company owned by euro Intergovernmental
Institutional form zone states organization
Guarantees and over-guarantees €80 billion paid-in capital,
Capital structure from the euro zone countries €620 billion callable capital
€440 billion; about €240 billion
€500 billion
Lending capacity remains
Funding costs + 200 bps for 3
Funding costs + 200 bps
Lending costs years, 300 bps afterwards
Duration Until June 2013 From July 2012
Financing Intergovernmental decision Linked to the Treaty
Sources: European Financial Stability Facility, European Stability Mechanism, ECB,
Moody’s Analytics
6
7. Macreconomic Imbalance Across Europe
Current account, % of GDP
Netherlands
Austria
Germany
Ireland
Euro area
Belgium
France
2011E
Spain
U.K. 2012F
Italy
Greece
Portugal
-15 -10 -5 0 5 10
Source: Moody’s Analytics
7
8. ECB Follows Taylor Rule
Policy rates in %, actual rate for ECB, Taylor rule based otherwise
12
ECB Germany
10
Greece Euro zone
8
6
4
2
0
-2
-4
-6
01Q3 03Q1 04Q3 06Q1 07Q3 09Q1 10Q3 12Q1
Source: Moody’s Analytics
8
9. ECB Becomes the Lender of Last Resort
Government bond yields, %
7.5 25
ECB bond purchases, € bil (R)
7.0
Italian 10-yr yield (L)
20
6.5 Spanish 10-yr yield (L)
6.0 15
5.5
5.0 10
4.5
5
4.0
3.5 0
Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12
Sources: Bloomberg, Moody’s Analytics
9
11. Banks Park Large Sums on ECB’s Deposits
Deposit facility, € mil
1,000
900
800
700
600
500
400
300
200
100
0
Aug Sep Oct Nov Dec Jan Feb Mar Apr
Sources: Moody’s Analytics, ECB
11
13. Credit To Private Sector Is Tightening
Net % of the euro zone banks reporting
40
35 Tightening of credit lines
30 Expected tightening of credit lines
25
20
15
10
5
0
09Q4 10Q1 10Q2 10Q3 10Q4 11Q1 11Q2 11Q3 11Q4 12Q1
Sources: ECB, Moody’s Analytics
13
14. Inflation Expectations Remain Subdued in Europe
HCPI forecast, % change
2.5
One year ahead
Two years ahead
2.0
1.5
1.0
99 00 01 02 03 04 05 06 07 08 09 10 11
Sources: ECB, Moody’s Analytics
14
15. Most Euro Zone Countries Are in Deficit
Fiscal balance in 2011, % of GDP
Ireland
Greece
Cyprus
Spain
Portugal
France
Slovakia
Slovenia
Netherlands
Italy
Belgium
Austria
Malta
Germany
Finland
Luxembourg
Estonia
-11 -10 -9 -8 -7 -6 -5 -4 -3 -2 -1 0 1
Sources: European Commission, Moody’s Analytics
15
16. Further Sharp Fiscal Consolidation Required
Budget deficit, % of GDP
12
31.3% 2010 2011E 2012F 2013F 2014F 2015F
11
10 Maximum deficit allowed
9 under EU fiscal rules
8
7
6
5
4
3
2
1
0
Ireland Greece Portugal Spain France Italy
Sources: Eurostat, Moody’s Analytics
16
17. French and German Banks Highly Exposed
Holdings of foreign debt, % of total, as of end Sep 2011
40
French banks German banks
35
30
25
20
15
10
5
0
Greece Ireland Portugal Italy Spain
Sources: Bank for International Settlements, Moody’s Analytics
17
18. Fiscal Tightening Has Hurt Greece’s Economy
%
8
4
0
-4
-8
Ratio of fiscal deficit to GDP
-12
Annual GDP growth
-16
01 02 03 04 05 06 07 08 09 10 11E
Sources: OECD, Moody’s Analytics
18
19. Outside Strength May Provide a Bolster
OECD composite leading indicator index
105
104
103
102
101
100
99 OECD U.S.
Japan Russia
98
G7 Euro zone
97
10 11 12
Sources: OECD, Moody’s Analytics
19
20. The Majority of Germany Exports Go to Europe
Export share by destination, 2010
Euro zone
29%
41%
Rest of Europe
Other
30%
Sources: German Federal Statistics Office, Moody’s Analytics
20
21. Euro zone Crisis Scenario
Real GDP, rebased 2008Q1=100
105
Euro zone baseline Euro zone crisis
100
95
90
08 09 10 11 12F 13F 14F
Source: Moody’s Analytics
21
22. Europe Falling Behind the Rest
Real GDP, rebased 2008Q1=100
115
Euro zone Germany France
110 Italy U.K. U.S.
World
105
100
95
90
08 09 10 11F 12F 13F
Sources: National Statistical Offices, Moody’s Analytics
22
23. Greece and Portugal Stuck Deep in Recession
GDP, % change yr ago
6
Greece Ireland Portugal
4
2
0
-2
-4
-6
-8
07 08 09 10 11 12F 13F 14F
Sources: Eurostat, National Statistics Offices, Moody’s Analytics
23
24. Polish Economy Outperforms CE
Real GDP growth, % change yr ago
5
Poland
Czech Republic
4
Hungary
3 Germany
2
1
0
-1
10 11 12F 13F
Sources: National Statistical Offices, Moody’s Analytics
24
25. CE Capitals Less Exposed to Fiscal Risk
Employment, public admin. & community service, % of total 2008
The Hague
Rome
Brussels
Berlin
Copenhagen
London
Paris
Helsinki
Lisbon
Vienna
Madrid
Athens
Stockholm
Warsaw
Vilnius
Ljubljana Central
Bratislava
Riga Europe
Bucharest
Prague
0 5 10 15 20 25 30 35 40 45
Source: Eurostat
25
26. European cities
Real GDP, SA, 2008 Q1=100
110
Moscow Berlin
105
London Paris
100 Rome
95
90
85
* forecasts
80
75
70
08Q1 08Q4 09Q3 10Q2 11Q1 11Q4* 12Q3* 13Q2*
Source: Moody’s Analytics
26
27. Moscow & London Defy Country Trends
Average quarterly y/y change of the house prices, %
Vienna
Gothenburg
Mosow
Stockholm 2003Q1-2008Q2
Bergen
2008Q3-2011Q4
Antwerpen
Oslo
Brussels
London
Budapest
Paris
St. Petersburg
Prague*
Barcelona
Warsaw*
Athens*
Madrid
Sofia
Notation:
Tallin* * data begins after 2003Q1
Dublin** ** data until 2010Q4
-15 -10 -5 0 5 10 15 20 25 30 35 40
Source: Moody’s Analytics, Bank of International Settlements
27
28. Scandinavian House Prices Overtake GDP
Ratio of house prices to GDP per capita
1.6
Bergen (NOR) Oslo (NOR)
1.5
1.4 Goethenburg (SWE) Stockholm (SWE)
1.3
1.2
1.1
1
0.9
0.8
0.7
0.6
02Q1 03Q1 04Q1 05Q1 06Q1 07Q1 08Q1 10Q3 11Q3
Sources: Moody’s Analytics
28
29. Swiss Real Estate Prices Rise
2002Q1=100, Owner-occupied Houses
130
Price To Per Capita
125 GDP
120 Price To Rent
115
110
105
100
95
90
02 03 04 05 06 07 08 09 10 11
Sources: SNB, Moody’s Analytics
29
30. Geneva and West Lead The Way
Prices Single-Family Houses, 2002=100
190 Zurich East Central
Northwest Bern South
170 Geneva West
150
130
110
90
02 06 10
Sources: SNB, Moody’s Analytics
30
31. In the U.K., Only London Remains Buoyant…
Median sales price, existing homes, 2008Q3=100
120
Birmingham Bristol Cardiff
115 Leeds London Manchester
Newcastle
110
105
100
95
90
Forecast
85
08Q3 09Q3 10Q3 11Q3 12Q3
Sources: DCLG, Moody’s Analytics
31
32. …But in Spain, Madrid Is Almost the Weakest
Median sales price, existing homes
110
Asturias Barcelona
105 Bilbao Madrid
Malaga Las Palmas
100
95
90
85
80
75
Forecast
70
08Q3 09Q3 10Q3 11Q3 12Q3
Sources: INE Spain, Moody’s Analytics
32
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