Christine Lagarde, President of the ECB, and Luis de Guindos, Vice-President of the ECB. Frankfurt am Main, 9 September 2021 |

Good afternoon, the Vice-President and I welcome you to our press conference.
The rebound phase in the recovery of the euro area economy is increasingly advanced. Output is expected to exceed its pre-pandemic level by the end of the year. With more than 70 per cent of European adults fully vaccinated, the economy has largely reopened, allowing consumers to spend more and companies to increase production. While rising immunity to the coronavirus means that the impact of the pandemic is now less severe, the global spread of the Delta variant could yet delay the full reopening of the economy. The current increase in inflation is expected to be largely temporary and underlying price pressures are building up only slowly. The inflation outlook in our new staff projections has been revised slightly upwards, but in the medium term inflation is foreseen to remain well below our two per cent target.
Financing conditions for firms, households and the public sector have remained favourable since our previous quarterly assessment in June. Favourable financing conditions are essential for the economy to continue its recovery and to offset the negative impact of the pandemic on inflation.
Based on a joint assessment of financing conditions and the inflation outlook, the Governing Council judges that favourable financing conditions can be maintained with a moderately lower pace of net asset purchases under the pandemic emergency purchase programme (PEPP) than in the previous two quarters.
We also confirmed our other measures, namely the level of the key ECB interest rates, our forward guidance on their likely future evolution, our purchases under the asset purchase programme (APP), our reinvestment policies and our longer-term refinancing operations, as detailed in the press release published at 13:45 today. We stand ready to adjust all of our instruments, as appropriate, to ensure that inflation stabilises at our two per cent target over the medium term.
I will now outline in more detail how we see the economy and inflation developing, and then talk about our assessment of financial and monetary conditions.
Economic activity
The economy rebounded by 2.2 per cent in the second quarter of the year, which was more than expected. It is on track for strong growth in the third quarter. The recovery builds on the success of the vaccination campaigns in Europe, which have allowed a significant reopening of the economy.
With the lifting of restrictions, the services sector is benefiting from people returning to shops and restaurants and from the rebound in travel and tourism. Manufacturing is performing strongly, even though production continues to be held back by shortages of materials and equipment. The spread of the Delta variant has so far not required lockdown measures to be reimposed. But it could slow the recovery in global trade and the full reopening of the economy.
Consumer spending is increasing, although consumers remain somewhat cautious in the light of the pandemic developments. The labour market is also improving rapidly, which holds out the prospect of higher incomes and greater spending. Unemployment is declining and the number of people in job retention schemes has fallen by about 28 million from the peak last year. The recovery in domestic and global demand is further boosting optimism among firms, which is supporting business investment.
At the same time, there remains some way to go before the damage to the economy caused by the pandemic is overcome. There are still more than two million fewer people employed than before the pandemic, especially among the younger and lower skilled. The number of workers in job retention schemes also remains substantial.
To support the recovery, ambitious, targeted and coordinated fiscal policy should continue to complement monetary policy. In particular, the Next Generation EU programme will help ensure a stronger and uniform recovery across euro area countries. It will also accelerate the green and digital transitions, support structural reforms and lift long-term growth.
We expect the economy to rebound firmly over the medium term. Our new staff projections foresee annual real GDP growth at 5.0 per cent in 2021, 4.6 per cent in 2022 and 2.1 per cent in 2023. Compared with our June staff projections, the outlook has improved for 2021 and is broadly unchanged for 2022 and 2023.
Inflation
Inflation increased to 3.0 per cent in August. We expect inflation to rise further this autumn but to decline next year. This temporary upswing in inflation mainly reflects the strong increase in oil prices since around the middle of last year, the reversal of the temporary VAT reduction in Germany, delayed summer sales in 2020 and cost pressures that stem from temporary shortages of materials and equipment. In the course of 2022 these factors should ease or will fall out of the year-on-year inflation calculation.
Underlying inflation pressures have edged up. As the economy recovers further, and supported by our monetary policy measures, we expect underlying inflation to rise over the medium term. This increase is expected to be only gradual, since it will take time for the economy to return to operating at full capacity, and therefore wages are expected to grow only moderately. Measures of longer-term inflation expectations have continued to increase, but these remain some distance from our two per cent target.
The new staff projections foresee annual inflation at 2.2 per cent in 2021, 1.7 per cent in 2022 and 1.5 per cent in 2023, being revised up compared with the previous projections in June. Inflation excluding food and energy price inflation is projected to average 1.3 per cent in 2021, 1.4 per cent in 2022 and 1.5 per cent in 2023, also being revised up from the June projections.
Risk assessment
We see the risks to the economic outlook as broadly balanced. Economic activity could outperform our expectations if consumers become more confident and save less than currently expected. A faster improvement in the pandemic situation could also lead to a stronger expansion than currently envisaged. If supply bottlenecks last longer and feed through into higher than anticipated wage rises, price pressures could be more persistent. At the same time, the economic outlook could deteriorate if the pandemic worsens, which could delay the further reopening of the economy, or if supply shortages turn out to be more persistent than currently expected and hold back production.
Financial and monetary conditions
The recovery of growth and inflation still depends on favourable financing conditions for all sectors of the economy. Market interest rates have eased over the summer, but reversed recently. Overall, financing conditions for the economy remain favourable.
Bank lending rates for firms and households are at historically low levels. Lending to households is holding up, especially for house purchases. The somewhat slower growth of lending to firms is mainly due to the fact that firms are still well funded, because they borrowed heavily in the first wave of the pandemic. They have high cash holdings and are increasingly retaining earnings, which reduces the need for external funding. For larger firms, issuing bonds is an attractive alternative to bank loans. Solid bank balance sheets continue to ensure that sufficient credit is available.
However, many firms and households have taken on more debt during the pandemic. A deterioration in the economic outlook could threaten their financial health. This, in turn, would worsen the quality of banks’ balance sheets. Policy support remains essential to prevent balance sheet strains and tightening financing conditions from reinforcing each other.
Conclusion
Summing up, the euro area economy is clearly rebounding. However, the speed of the recovery continues to depend on the course of the pandemic and progress with vaccinations. The current rise in inflation is expected to be largely temporary and underlying price pressures will build up only gradually. The slight improvement in the medium-term inflation outlook and the current level of financing conditions allow favourable financing conditions to be maintained with a moderately lower pace of net asset purchases under the PEPP. Our policy measures, including our revised forward guidance on the key ECB interest rates, are key to helping the economy shift to a sustained recovery and, ultimately, to bringing inflation to our two per cent target.
We are now ready to take your questions.

Compliments of the European Central Bank.
The post ECB Monetary Policy Statement first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

The European Commission has today adopted an independently evaluated Green Bond framework, thus taking a step forward towards the issuance of up to €250 billion green bonds, or 30% of NextGenerationEU’s total issuance. The framework provides investors in these bonds with confidence that the funds mobilised will be allocated to green projects and that the Commission will report on its environmental impact.
Now that the framework has been adopted, the Commission will soon proceed with the first green bond issuance in the month of October, subject to market conditions.
Commissioner in charge of Budget and Administration, Johannes Hahn, said: ”The EU’s intention to issue up to €250 billion in green bonds between now and end-2026 will make us the largest green bond issuer in the world. This is also an expression of our commitment to sustainability and places sustainable finance at the forefront of the EU’s recovery effort”.
As announced earlier this year, the Commission has also reviewed its plan for funding the recovery in 2021 and confirmed its intention to issue a total of around €80 billion of long-term bonds this year, to be topped up by tens of billions of euros of short-term EU-Bills.
The Commission will be offering the EU-Bills exclusively via auctions, with its auctioning programme due to start on 15 September. The Commission will be organising typically two auctions per month for EU-Bills, on the first and third Wednesday of the month. The auctioning programme will also be used for bonds, in addition to syndications. Under its issuance calendar released today, the Commission in general will be holding one auction and one syndication per month for its bonds.
Commissioner Johannes Hahn added: “The confirmation of our original funding plan for 2021 is a sign of the excellent planning and preparatory work done so far. The launch of our auctioning platform is another piece of great news, which will further raise the attractiveness of EU borrowing and have a lasting impact on the EU capital markets.”
NextGenerationEU Green Bond framework – a state-of-the-art exercise
Today’s NextGenerationEU green bond framework has been drafted in line with the green bond principles of the International Capital Market Association (ICMA), which is a market standard for green bonds. In line with standard practice, the framework has been reviewed by a second party opinion provider, Vigeo Eiris, part of Moody’s ESG Solutions, which considers that the framework is aligned with the ICMA’s Green Bond Principles, is coherent with the EU’s wider Environmental, Social and Governance (ESG) strategy and will provide a robust contribution to sustainability.
The framework has been aligned, to the extent feasible, with the European green bond standard. The EU Green Bond standard proposal was tabled by the Commission in July 2021 with a subsequent co-decision process in the European Parliament and Council, which will be followed by an implementation period prior to entry into force. This alignment is reflected for example in the fact that a portion of the eligible investments under the Recovery and Resilience Facility (RRF) – the main instrument to drive Europe’s recovery – have integrated the EU taxonomy technical screening criteria.
Making sure that the green bonds are used for green objectives
Today’s framework demonstrates to the investor community how the funds raised by the NextGenerationEU green bond issuance will be used for green objectives.
More concretely, the NextGenerationEU green bond proceeds will finance the share of climate-relevant expenditure in the RRF. Every Member State has to dedicate at least 37% of their national Recovery and Resilience Plan – the roadmap to spending the funds under the Recovery and Resilience Facility – to climate-relevant investments and reforms, with many Member States planning to do more than required.
Under the RRF rules, Member States will report to the Commission the green expenditures that they make. The Commission will use that information to show to investors how the green bonds proceeds have been used to finance the green transition. The reporting will be organised around nine categories as identified in the NextGenerationEU Green Bond framework, with clean energy, energy efficiency and clean transportation taking the largest share.
Reporting
In line with standard practice, the framework will report on both allocation and impact. For the allocation reporting, the Commission will use Member States’ data on spending on green projects. An independent external auditor will verify the allocation reporting.
Impact reporting will be a cross-Commission exercise, drawing on the wide expertise inside the institution. This reporting will allow investors in NextGenerationEU green bonds to gauge the beneficial impact of their investment. To ensure that the impact reporting is meaningful, unbiased and accurate, the European Commission will rely on independent expert advice. On this basis, the Commission will disclose how the proceeds of the NextGenerationEU green bonds have been allocated to different investment categories and Member States.
Next steps
Following the release of the framework, the launch of NextGenerationEU green bonds is imminent, with the first issuance already planned for October 2021, using the syndicated issuance format.
Background
NextGenerationEU is a temporary recovery instrument of some €800 billion in current prices to support Europe’s recovery from the coronavirus pandemic and help build a greener, more digital and more resilient Europe.
To finance NextGenerationEU, the European Commission – on behalf of the EU – will raise from the capital markets up to around €800 billion between now and end-2026. €421.5 billion available mainly for grants (under RRF and other EU budget programmes); €385.2 billion for loans. This will translate into borrowing volumes of an average of roughly €150 billion per year.
Given the volumes, frequency and complexity of the borrowing operations ahead, the Commission will follow the best practices used by large and frequent issuers, and has implemented a diversified funding strategy.
In September 2020, the European Commission announced its intention to raise 30% of the NextGenerationEU funds through the issuance of green bonds and use the proceeds to finance green investments and reforms, in a clear sign of its commitment to sustainability.
Compliments of the European Commission.
The post NextGenerationEU: European Commission gearing up for issuing €250 billion of NextGenerationEU green bonds first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

The Commission has today adopted its second annual Strategic Foresight Report – “The EU’s capacity and freedom to act”*. This Communication presents a forward-looking and multidisciplinary perspective on the EU’s open strategic autonomy in an increasingly multipolar and contested global order. The Commission has identified four main global trends, affecting the EU’s capacity and freedom to act: climate change and other environmental challenges; digital hyperconnectivity and technological transformation; pressure on democracy and values; and shifts in the global order and demography. It has also set out 10 key areas of action where the EU can seize opportunities for its global leadership and open strategic autonomy. Strategic foresight thereby continues to inform the Commission’s Work Programmes and priority-setting.
European Commission President Ursula von der Leyen said: “European citizens experience almost on a daily basis that global challenges such as climate change and digital transformation have a direct impact on their personal lives. We all feel that our democracy and European values are being put into question, both externally and internally, or that Europe needs to adapt its foreign policy due to a changing global order. Early and better information about such trends will help us tackle such important issues in time and steer our Union in a positive direction.”
Vice-President Maroš Šefčovič, in charge of interinstitutional relations and foresight, said: “While we cannot know what the future holds, a better understanding of key megatrends, uncertainties and opportunities will enhance the EU’s long-term capacity and freedom to act. This Strategic Foresight Report therefore looks into four megatrends with a major impact on the EU, and identifies ten areas of action in order to boost our open strategic autonomy and cement our global leadership towards 2050. The pandemic has only strengthened the case for ambitious strategic choices today and this report will help us keep an eye on the ball.”
Ten strategic areas of policy action

Ensuring sustainable and resilient health and food systems;
Securing decarbonised and affordable energy;
Strengthening capacity in data management, artificial intelligence and cutting-edge technologies;
Securing and diversifying supply of critical raw materials;
Ensuring first-mover global position in standard setting;
Building resilient and future-proof economic and financial systems;
Developing and retaining skills and talents matching EU ambitions;
Strengthening security and defence capacities and access to space;
Working with global partners to promote peace, security and prosperity for all; and
Strengthening the resilience of institutions

Next Steps
The Commission will continue to implement its Strategic Foresight Agenda for this policy cycle, informing Work Programme initiatives for next year. On 18-19 November, it will host the annual European Strategy and Political Analysis System (ESPAS) conference to discuss the topic of next year’s Strategic Foresight Report – the twinning of the green and digital transitions, i.e. how they can mutually reinforce each other, including by using emerging technologies. Furthermore, the EU-wide Foresight Network of the “Ministers for the Future” in all Member States will continue to build foresight capacity in EU Member State administrations. Later this month, the Commission will also finalise a public consultation on its resilience dashboards, a new tool to assess resilience in a more holistic manner, in the EU and its Member States. This will contribute to measuring social and economic wellbeing by going beyond GDP. A public consultation on the Commission’s draft resilience dashboards is ongoing until 30 September.
Background
Strategic foresight supports the Commission on its forward-looking and ambitious path towards achieving President von der Leyen’s six headline ambitions. Beginning in 2020, annual Strategic Foresight Reports are prepared, based on full foresight cycles, to inform the priorities of the annual State of the Union speech, the Commission Work Programme and multi-annual programming.
This year’s report builds on the 2020 Strategic Foresight Report, which introduced resilience as a new compass for EU policymaking. The megatrends and policy actions laid out in the 2021 Strategic Foresight Report were identified through an expert-led, cross-sectoral foresight exercise conducted by the Commission services, with broad consultations of Member States, and other EU institutions in the framework of the European Strategy and Policy Analysis System (ESPAS). The results of the foresight exercise are presented in a Joint Research Centre Science for Policy report: Shaping and securing the EU’s Strategic Autonomy by 2040 and beyond.
To support building foresight capacities across the EU, the Commission established the EU-wide Foresight Network, including 27 Ministers for the Future from all Member States. This network shares best practices and informs the Commission’s strategic foresight agenda by discussing key issues of relevance for Europe’s future.
Compliments of the European Commission.
The post 2021 Strategic Foresight Report: Enhancing the EU’s long-term capacity and freedom to act first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

Keynote speech by President Charles Michel at the Tallinn Digital Summit |
Thank you for your invitation. It’s both a pleasure and a challenge to speak to you today. When it comes to digital, Estonia stands at the vanguard in Europe. And this Tallinn Digital Summit is the place to be. Estonia is geographically on the periphery of the EU, but you have positioned yourself at the very heart of our Digital Revolution.
Today I’d like to outline the role that Digital must play in the overall strategy of the European Union. Our guiding principles, our goals, and the concrete action we are taking in this field.
A global transformation
Our Strategic Agenda centres on our twin transitions: climate and digital. The European Council took this decision before Covid and before the “build back better” approach of our post-Covid world.  The pandemic has injected greater urgency, and more reasons, to pursue our transformational path to a more sustainable and fairer model.  We want to transform Europe, and we want a better world.  We need more prosperity and more fairness.
Our main goals
Digital is one of the fastest growing sectors — it creates jobs and drives economic growth.  It brings new products and services to market and unleashes the full potential of innovation.  Digital is a cross-cutting tool that is revolutionising countless sectors and energising countless areas of our lives.  And most crucially, it is driving forward the green technologies that will protect our planet.  Data-driven climate decisions, for example, will be more precise and effective. And digital monitoring will allow for more efficient use of energy and resources.  And in healthcare, the data industry is already modernising public health management.
We want to make Europe more autonomous.  In our interconnected world, a certain amount of interdependence is normal, even desirable.  But dependency is not desirable.  Europe must strive for more influence, and less dependence.  That applies both to our digital strategy and our geopolitical strategy.
A few guiding principles
So how do we pursue these goals?  First, we must put them in our broader connectivity strategy. This strategy should be anchored in our values and reflected in our standards. This will bolster our autonomy and drastically reinforce our cybersecurity.
We must develop a common view and an ambitious EU vision on connectivity. Kaja Kallas has just outlined a number of inspiring ideas on this topic.  Connectivity refers not only to physical infrastructure and networks. It encompasses a wide range of ventures and policies aimed at bringing people and societies closer together.  This is what Europe’s engagement with the world is all about.
But on the other hand, some blocs are working on connectivity to create deep dependencies.  They are not waiting for us.  Their connectivity offers are already on the table, according to their economic and political interests.  So we need to up our game.  We are already forging broad connectivity partnerships with like-minded countries such as India, Japan, the US and Canada. And we are tailoring our offer to meet the specific needs and expectations of our partners around the world.
We want to develop greater cooperation. This is true not just for the Western Balkans or the Eastern Partners but equally for our Central Asian partners, Africa, and elsewhere.  But we must do more — be more strategic, be more streamlined — and better market and brand our offer. This is trusted connectivity.  And most importantly, it should reflect our European vision of what a partnership should be — fair, balanced, and human-centred.  There is still work to strengthen such an offer. It will require leadership and collective action. The European Council is ready to play its key role.
Our digital strategy must be based on our values: human rights and fundamental freedoms in human-centred societies. Our standards should be based on trust and transparency. Transparency does not only mean that people must know how their personal data is used. Transparency must also apply to finance, taxes, or the way in which algorithms are deployed.  Fairer taxation of international business is a key topic in the eyes of the public. Integrating the price of carbon in international trade is a matter of fairness in the fight against climate change.
Trust also means accountability. Citizens want to know the State’s budget is well spent. They want to know that new development projects respect their health and their environment.  We in the EU have a powerful tool: our regulatory power.  The famous “Brussels effect”.  We are the leading standard setter in the world.
Digital sovereignty is key to our strategic autonomy. And we are working hard to make this happen, for instance, moving from 5G to 6G and advancing the idea of a low earth orbit satellite.  In the area of semiconductors, Commissioner Breton is driving forward the European alliance on microprocessors.  I am confident that the E-identity will be another step in promoting our overall digital sovereignty.
This brings me to the critical topic of security, which relates to the “trust” factor, I mentioned earlier.  Cyber-security is a key condition for greater influence on the global scene. The latest high profile cyberattacks in Europe have shone a spotlight on the urgency of building a sound cybersecurity system.   This domain is basically a national competence. But the threats are global, and the attackers are global. That’s why a proper response should lie in the EU’s overall cyber resilience.  Such an approach could include promoting greater collaboration among Member States, boosting national capacities and European industries, and launching ambitious education and training programmes across the EU.
The leaders’ digital agenda of the next months
So where do we stand concretely on our digital strategy?  First, several major legislative proposals are now on the table: the Data Governance Act, the Digital Services Act, the Digital Markets Acts, the Artificial Intelligence Act and the E-identity bill. These proposals are currently being discussed by legislators, Council, and Parliament. And we will give fresh impetus to this at our next regular meeting of the European Council in October.  The Digital Compass, requested by the European Council, with key targets for 2030, will also be on the agenda for this meeting.
We have a clear vision for our digital future.  It is anchored in concrete goals and ambitious targets.  And most importantly, it is a digital future that serves our people and builds inclusive societies.  Today’s digital revolution is a massive opportunity to improve our quality of life across countless areas of our societies.  It is a cornerstone of the EU’s strategy for more prosperity, more well-being, more freedom and more autonomy.  Our digital model will offer inspiration far beyond our borders — of European openness and confidence. Thank you.
Compliments of the European Council.
The post Speech: “EU’s Digital Revolution: fueling our connectivity strategy” first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

Contribution by Isabel Schnabel, Member of the Executive Board of the ECB, to the International Monetary Fund’s magazine Finance and Development |
Central banks must do their part in fighting global warming
The devastating effects of climate change are becoming increasingly evident.[1] Temperature records are being shattered again this year—in Canada, the United States, arctic Russia and central Asia. Globally, the past six years have been the hottest six on record, and temperatures in 2020 exceeded the 1850-1900 average by 1.25°C (2.25°F).
Exactly how climate change will affect the economy and the financial system is uncertain. The European Central Bank (ECB) is currently trying to quantify the consequences of climate change on companies and banks through an economy-wide stress test. The exercise, the results of which will be published soon, draws on a range of climate scenarios developed by the Network for Greening the Financial System (NGFS), a global association of central banks and supervisory authorities advocating a more sustainable financial system. These scenarios are used to assess the potential impact of climate change on roughly four million companies worldwide and nearly 2,000 banks in the euro area.
Preliminary results show that without further mitigation policies physical risks from climate change—heat waves, windstorms, floods, droughts, and the like—will probably increase substantially (Alogoskoufis and others, 2021). The average default probability of the credit portfolios of the 10 percent of euro area banks most vulnerable to climate risks could rise substantially—up 30 percent by 2050. Firms across Europe are exposed to physical risks from climate change, although risks are distributed unevenly (see Chart 1).

Chart 1
Corporate exposures to physical risks within Europe
(Maximum risk level of each firm)

Source: Alogoskoufis and others, (2021).
Note: Green represents no significant exposure. Color shifts as exposure increases to red, which represents high present / projected exposure. Gray indicates no information is available.

Compared with these risks, the costs of transitioning to a carbon-neutral economy appear relatively contained (de Guindos, 2021). There are clear benefits to acting early. The transition may be costly in the short run, but upfront investment will likely be more than offset over the long run as firms avoid the aggravation of physical risks and reap the economic rewards of mitigation. Based on a range of different models, recent IMF research echoes these findings (Barrett and others, 2020). The resulting message is simple: now is the time to undertake ambitious and broad-based action to ensure an orderly transition and mitigate the effects of climate change.
The existential threat posed by climate change implies that all policymakers must contemplate how to contribute to the fight against global warming. While governments are the primary actors, a consensus is building that central banks cannot stand on the sidelines. The NGFS, established with eight members in 2017, now has 95 members and 15 observers, including all major central banks. In 2019, the IMF joined as an observer.
The main reason that central banks should increase their attention to climate change is the likelihood it will affect their ability to achieve their mandates. The ECB’s primary mandate is price stability, an objective shared by most central banks. Evidence suggests that climate change has crucial implications for price stability and also affects other areas of central bank competence, such as financial stability and banking supervision.
Climate change affects price stability through at least three channels.
First, the consequences of climate change might impair the transmission of central banks’ monetary policy measures to the financing conditions faced by households and firms, and hence to consumption and investment. Losses from materializing physical risks or stranded assets (such as oil reserves that will not be tapped as the world moves away from fossil fuels) could weigh on financial institutions’ balance sheets, reducing the flow of credit to the real economy. In addition, the longer climate change is insufficiently addressed, the greater the risks to policy transmission from a sharp and abrupt rise in credit risk premiums. Central banks themselves are exposed to potential losses—from securities acquired in asset purchase programs and on the collateral provided by counterparties in monetary policy operations.
Second, climate change could further diminish the space for conventional monetary policy by lowering the equilibrium real rate of interest, which balances savings and investment. For example, higher temperatures might impair labor productivity or increase rates of morbidity and mortality. Productive resources might be reallocated to support adaptation measures, while climate-related uncertainty may increase precautionary savings and reduce incentives to invest. Collectively, these factors can reduce the real equilibrium interest rate and therefore increase the likelihood that a central bank’s policy rate will be constrained. But this is far from certain; equilibrium rates might instead rise because of green innovation and investment and chart a path out of the current low-inflation, low-interest-rate environment.
Third, both climate change and policies to mitigate its effects can have a direct impact on inflation dynamics. Recent history confirms that a greater incidence of physical risk can cause short-term fluctuations in output and inflation that amplify longer-term macroeconomic volatility. Unless mitigation policies are more forceful, the risk of even larger climate shock grows, with more persistent consequences for prices and wages. In addition, even mitigation policies, such as carbon pricing programs, can affect price stability, potentially precipitating large and long-lasting trends in relative prices and driving a wedge between headline and core measures of inflation.
As a result of these factors, central banks are starting to integrate climate-related risks into their monetary policy operations.
Toward carbon neutrality
Climate change considerations formed an integral part of the ECB’s monetary policy strategy review that concluded in July 2021. We published an ambitious action plan and a detailed roadmap confirming our strong commitment to further incorporating climate change considerations into our monetary policy framework. Our comprehensive strategy review demonstrated that there are many areas in which central banks can contribute to the fight against global warming, and further areas may open up in the future.
By thoroughly analyzing potential actions and developing ways to make them operational, for example regarding the classification of more or less “green” activities, the ECB and other central banks can act as catalysts for promoting a more sustainable financial system. Moreover, by pre-announcing changes to our operational framework, we can encourage market participants to speed up the transition to carbon neutrality.
As part of its action plan, the ECB will embed climate change considerations into its monitoring of the economy—for example by bolstering analytical capacity in climate-related macroeconomic modelling and forecasting.
As part of its statistical function, the ECB will develop new climate-related statistical indicators, for example regarding the classification of green instruments, the carbon footprint of financial institutions’ portfolios and their exposures to climate-related physical risks.
In addition, the ECB is advocating climate disclosures that are internationally consistent and auditable. The ECB will introduce disclosure requirements for private sector assets, either as a new eligibility criterion or as basis for differentiated treatment for collateral purposes and asset purchases, which could help to speed up disclosure in the corporate sector. The ECB will start disclosing climate-related information on its non-monetary policy portfolios, and its corporate sector purchase program (CSPP) by the first quarter of 2023.
Starting in 2022, the ECB will conduct climate stress tests of the Eurosystem balance sheet, using the methodology of its ongoing economy-wide climate stress test. The ECB will further perform a review to gauge the extent to which credit ratings and asset valuations under our collateral framework reflect climate-related risk exposures.
The ECB will also incorporate climate-related criteria into its corporate bond purchases. In the past, allocations of private sector bonds have generally been guided by the principle of market neutrality—in which purchases reflect the composition of the overall market— to avoid relative price distortions.
However, emission-intensive sectors tend to have large fixed long-term capital investment needs and generally issue bonds more frequently. As a result, CSPP-eligible debt and the ECB’s portfolio exhibit high emission intensity (Papoutsi and others, 2021). In other words, adherence to the market neutrality principle is likely to perpetuate pre-existing market failures or even exacerbate market inefficiencies that give rise to a suboptimal allocation of resources.
It seems appropriate, then, to replace the market neutrality principle with one of market efficiency that more fully incorporates the risks and societal costs associated with climate change (Schnabel, 2021), taking into account the alignment of issuers with EU legislation implementing the Paris Agreement.
With its new strategy and action plan, the ECB acknowledges that climate change is a global challenge that requires an urgent policy response, including from central banks. Within our mandate, we are determined to contribute to accelerating the transition to a carbon-neutral economy.
References:
– Alogoskoufis, S. et al. (2021), “Climate-related risks to financial stability”, Financial Stability Review, ECB, May.
– Barrett, P. et al. (2020), “Mitigating climate change – growth- and distribution-friendly strategies”, World Economic Outlook, Chapter 3, International Monetary Fund, October.
– de Guindos, L. (2021), “Shining a light on climate risks: the ECB’s economy-wide climate stress test”, The ECB Blog, March.
– Papoutsi, M., Piazzesi, M. and Schneider, M. (2021) “How unconventional is green monetary policy?”, JEEA-FBBVA Lecture at ASSA (January 2021), Working paper.
– Schnabel, I. (2021), “From market neutrality to market efficiency”, Welcome address at the ECB DG-Research Symposium “Climate change, financial markets and green growth”, Frankfurt am Main, 14 June.
Compliments of the European Central Bank.
The post ECB | Central banks have to play their part: Climate change and monetary policy first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

Interview with Luis de Guindos, Vice-President of the ECB, conducted by Miquel Roig and Jorge Zuloaga on 26 August and published on 1 September 2021 |

You are almost halfway through your term as Vice-President of the ECB. How would you assess your term so far, and what aims do you have for the second half?
These three years have been extremely interesting, and they have been marked, above all else, by the pandemic – an extraordinary event that has sparked an enormous health crisis. It had an extremely severe economic impact in a short space of time, which required an unprecedented economic and monetary policy response. The next 18 to 24 months will be defined by attempts to leave the economic consequences of the pandemic behind us and to minimise its structural impact. That will be the main objective.
I thought you might be a little more optimistic, but it seems you are happy with mitigating the consequences and going back to where we were before.
Some of the short-term impact has been successfully mitigated, but the pandemic will have had structural effects on the European and world economies. The fiscal effects will be the most apparent, with the euro area’s average debt-to-GDP ratio 20 percentage points higher and more pronounced structural deficits. There is also other scarring, which could be structural, in the job market, as well as greater inequality between advanced and emerging economies. The pandemic has had a greater impact on small and medium-sized enterprises, low-income workers and women.
In such an environment, do you think the economy is ready for a gradual withdrawal of asset purchases?
I was talking about the medium term in what I just said. The ECB’s primary response to the crisis consisted of action in three different areas. The first focused on liquidity, through the targeted longer-term refinancing operations, or TLTROs, supporting banks’ credit provision to households and firms. The second focused on asset purchases through our emergency [purchase] programme. And the third focused on changes in the field of banking supervision to enable banks to free up capital and increase their lending capacity. These measures were crucial to averting a debt crisis. Bond market fragmentation has been avoided, and we have ensured that financing conditions remain favourable. Future monetary policy decisions will essentially depend on how the economy and inflation develop in the coming months.
But with that in mind, is it not too early to determine whether or not the European economy is ready for the emergency purchases to be withdrawn?
The monetary policy measures were intended to limit the impact of the pandemic on the economy, maintain favourable financing conditions and ensure we met our inflation target. Looking at the European economy, you can see that the recovery was very strong in the second quarter, and we believe it will continue to be fairly strong in the third and fourth quarters. Our emergency [purchase] programme is linked to the pandemic and its economic consequences. But one thing is clear: recent data are very positive. The European economy will be able to recover its pre-pandemic income levels by the end of this year or the beginning of next year. We will have new projections in the coming days and will take our decisions accordingly. In September we will also have to decide on the volume of purchases for the last quarter of this year. If inflation and the economy recover, then there will logically be a gradual normalisation of monetary policy, and of fiscal policy too.
Up until now, you have said that we would reach pre-COVID income levels in the first quarter of 2022. Is it the improving economic forecasts that are now leading you to say this could happen by the end of the year?
It is a nuanced issue – we are talking about just a few months. The economy is performing better in 2021 than we expected, and this will be reflected in the projections that will be published in the coming days. The leading indicators are positive, and in the coming days we will see the actual figures. The main uncertainty was the impact the Delta variant would have. What we are seeing is that it is not having as great an impact as we projected four months ago. This is mainly because governments have responded with fewer restrictions on economic activity than we had anticipated.
Does this improvement in the projections also apply to Spain?
The Spanish economy shrunk by 10.8% in 2020, more than any other euro area economy. So it should logically experience a stronger-than-average recovery. A country’s economic development during the pandemic should be assessed in terms of when it recovers its previous income levels.
What are your expectations for inflation growth?
Inflation will continue to pick up in 2021. Our baseline scenario is that it will fall back in 2022. We have to check that there are no second-round effects, because that would mean this temporary impact would become structural.
What is the ECB’s assessment of the measures governments have taken to soften the impact of the crisis? Did they get it right, or have they gone too far?
In terms of fiscal policy, governments acted in a very similar manner. First, they provided public guarantees, so credit continued to flow. Second, they granted moratoria, which have also had a positive impact. And third, the temporary layoff schemes that have been introduced in various countries have also been very effective. These measures have taken the sting out of the crisis, the impact of which has been greater on GDP than on employment. In Europe, GDP fell by 7%, but employment by just 2%. However, if we look at the figures for hours worked, the fall was greater.
Were any measures missing? Or do you maybe think some measures went too far, like public borrowing?
The measures were appropriate. The rise in the debt-to-GDP ratio was inevitable. Significant action was needed in the realm of fiscal policy. The alternative would have been worse. And at the European level, this time there was a response that stood out: Next Generation EU. European funds, if used well, will be crucial to the recovery.
With the worst of the pandemic over, should steps now be taken to reduce public debt and correct the deficit?
The premature withdrawal of stimulus should be avoided given that the economic situation is still fragile. Some measures are being gradually withdrawn, such as temporary layoff schemes, debt moratoria and loan guarantee schemes. In that respect, we are seeing how fiscal measures are starting to adjust to a certain degree of normalisation. The withdrawal should be prudent, while also avoiding leaving measures in place for too long leading to the creation of moral hazard or the zombification of the European economy.
Nobody is saying that adjustments won’t be necessary, but there are two schools of thought: one is in favour of starting to talk about them already, while the other would prefer to put it off until later. Which do you most identify with?
Once the pandemic and its effects are over, countries are going to find themselves with higher deficits and, more importantly, with much higher levels of public debt. Once the effects of the pandemic are behind us, credible budgetary plans will be required. It will be up to the European Commission to set the pace in this area, since this is a fiscal policy issue. The general escape clause will apply next year, but once pre-pandemic income levels are reached, the Stability and Growth Pact will once again be taken into consideration.
Although fiscal policy is the European Commission’s responsibility, are you not afraid that this increase in public debt could once again raise the issue of the link between sovereign risk and the banking sector?
The pandemic has brought about an increase in budget deficits and debt-to-GDP ratios. It has also led to greater divergence between countries. Those with a debt-to-GDP ratio higher than the European average will have to make a greater effort to rectify this situation through a credible budgetary plan. It’s that simple. The European Commission will decide on the exact form, and in any case, any plan must be implemented gradually and cautiously.
At the start of the crisis, one of our main concerns was the risk of a “doom loop”, i.e. the interconnectedness of firms, banks and sovereigns and the risks that could arise from it. Fortunately, these risks did not materialise. The non-performing loan ratio has continued to fall, it has not had an impact on bank balance sheets and credit did not dry up, which would have made the economic situation worse. And this occurred thanks to the fiscal policy measures, the debt moratoria, the government loan guarantee schemes, the liquidity we have provided to banks and the fact that the ECB’s actions have ensured that financing conditions remain favourable.
This is the negative link that has been avoided and that we must continue to avoid. How can we do this? By withdrawing stimulus gradually. There must first be an economic recovery before monetary policy and fiscal policy can return to normal. But obviously we will not always have emergency programmes, since that would mean that we had not put the pandemic and related costs behind us.
All of the ECB’s actions have contributed towards eliminating these negative links. But its actions carry risks as well as benefits. For example, the more stimulus there is, the more difficult it is to withdraw. How dangerous an obstacle is this?
Withdrawal of the extraordinary stimulus measures should be aligned with changes in economic activity levels. If things start to return to normal, as is currently the case, the extraordinary measures will have to be gradually withdrawn. We should monitor economic developments, inflation and economic projections. We will analyse upside and downside risks, then make a decision. We rely on the data. At the end of 2019, before the pandemic, the ECB had its monetary policy and governments had their fiscal policy. When the pandemic is over, we will have to return to using the economic, fiscal and monetary stimulus measures that correspond to a normal economy. We are not there yet, but we are gradually and continually moving towards that point.
The Bundesbank recently renewed its criticism of the ECB’s ultra-loose policy. In the current climate, does this stance worry you?
In a very high percentage of cases, the ECB’s monetary policy was adopted unanimously. This was the case for the pandemic emergency purchase programme. Different points of view do of course exist; there are 25 of us on the Governing Council. Sometimes we take decisions unanimously and other times with a large majority. The strategy review, for example, was adopted unanimously.
We wanted to ask you about that. Some say it is a missed opportunity, others that it goes too far. Do you think it will still be around in another 20 years?
I wouldn’t dare make forecasts for the next 20 years. Besides, we have said that the Governing Council intends to assess periodically the appropriateness of its strategy, and the next assessment will take place in 2025.
But do you see signs that the market thinks that the ECB will be more tolerant about inflation?
It’s not a question of being more tolerant. We have changed the definition of price stability, but that doesn’t mean that in general we will accept a much higher rate of inflation. We have set our target based on a logical development. The inflation target is now 2% over the medium term and not “below, but close to, 2%”, as it was before. That’s not revolutionary. We continue to be fully committed to price stability.
But the definition is more tolerant.
Yes, but that’s a marginal issue. We have said that our target is symmetric, meaning that any negative or positive deviations from the 2% target are equally undesirable. This is important because up until now, the perception was that the ECB acted more forcefully when inflation overshot the target. But we’re not like the Federal Reserve System and we don’t accept inflation compensation. What we have said is that inflation can be temporarily and moderately higher than 2% because current interest rates are zero or close to zero. But that does not mean that in general we have raised our level of acceptance of high inflation.
One of the risks of monetary policy is the development of bubbles in assets such as real estate, which has continued to increase considerably in Spain. Do you see a risk of overheating?
There are certain sectors in the European real estate market, such as residential real estate, where we are seeing prices rising and which we are therefore monitoring. These cases of very specific sectors, which are nevertheless starting to become more common, have to be addressed through macroprudential policy. Monetary policy is not the appropriate tool because it cannot differentiate in that regard.
And, in your view, have the conditions been met for macroprudential buffers to be activated in certain countries?
There were some countries, like Germany or France, which had taken measures such as activating the additional capital buffer. But they deactivated it when the pandemic hit, which makes sense. Once things return to normal, it would also make sense to take measures of this kind if there are instances of overheating.
There have been quite a lot of mergers in Spain. When you were a minister you worked with the idea of there being fewer banks. Do you think there is still scope to work along these lines?
The context is one of low profitability in the banking sector, and consolidation is a tool that can be used to improve profitability through cost savings. But it is a tool and not an end in itself. It’s the market, not the ECB, that takes decisions about bank consolidation. What the ECB has identified – in Europe, not just in Spain – is an environment of low profitability. This has now improved because the level of provisioning hasn’t been as high as it initially might have needed to be. From the structural perspective, Europe is facing a situation of overcapacity and excess costs. And consolidation is a tool that can be used to bring about improvements in those areas.
And in this context of overcapacity and the need to improve profitability, what are your views on the debate in Spain about bank redundancies? Could it get in the way of the improvements needed in terms of profitability?
As ECB Vice-President I can’t comment on that kind of domestic matter. In general, bank consolidation is one of the methods that can help to improve profitability. This sometimes means making adjustments, which can be painful in the short term. But if the adjustments are not made, there’s the possibility of a crisis. Moreover, bank profitability is not only a medium-term problem. It has implications for banks’ ability to generate capital now, and it even ends up affecting their lending capacity. Of course, we must think about measures that might minimise the downside of the necessary adjustments. But, if nothing is done, over time that low profitability ends up becoming a much more structural crisis.
Following the controversy surrounding [the asset management company] Sareb, would you change anything from the 2012 bailout?
The bank bailout allowed Spain to grow [at a rate] above the European average for years and has made it easier for Spanish banks to face the stress tests and the crisis with sufficient levels of solvency. Having said that, there is always room for improvement.
During the latest round of earnings announcements, the banks have been clear that current provisions are more than sufficient, and some even see the right conditions to start releasing some, which goes against the ECB’s message. Have the banks won the battle with the supervisor?
It’s not a matter of battles. A wave of corporate bankruptcies, as was feared in March or April last year, has been successfully averted. But the fact that developments in non-performing loans lag behind economic developments must be taken into account. And this is particularly true in the current circumstances, when there have been moratoria and government guarantees. The current low levels of non-performing loans don’t appropriately reflect what might happen in the coming months. Non-performing loans are going to rise. So from the financial stability and supervisory perspectives, caution is the best approach. Banks will have to adjust those provisions to an increase in non-performing loans due to the significant time lags. The “fallen angels” situation has been avoided, but that doesn’t mean that there won’t be an increase in non-performing loans in the coming quarters. And if that happens, provisions will have to be adjusted.
Despite all the attention the ECB has given to stopping reputational issues in the banking sector, they are still very much present, at least in Spain with cases like Villarejo. Does it worry you that there is no end to such cases?
A bank’s main asset is its reputation. The banks themselves have the greatest interest in their reputation being spotless, since their credibility and business depend crucially on the trust that is placed in them.
Compliments of the European Central Bank.

The post ECB Interview | Tackling the fallout from the pandemic first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

Today, the EU has reached a crucial milestone with 70% of the adult population now fully vaccinated. In total, over 256 million adults in the EU have now received a full vaccine course. Seven weeks ago already, the Commission’s delivery target was met, ahead of time: to provide Member States, by the end of July, with enough vaccine doses to fully vaccinate 70% of the adult EU population.
The President of the European Commission, Ursula von der Leyen, said:  “The full vaccination of 70% of adults in the EU already in August is a great achievement. The EU’s strategy of moving forward together is paying off and putting Europe at the vanguard of the global fight against COVID-19.  But the pandemic is not over. We need more. I call on everyone who can to get vaccinated. And we need to help the rest of the world vaccinate, too. Europe will continue to support its partners in this effort, in particular the low and middle income countries.”
Stella Kyriakides, Commissioner for Health and Food Safety, said:  “I am very pleased that as of today we have reached our goal to vaccinate 70% of EU adults before the end of the summer. This is a collective achievement of the EU and its Member States that shows what is possible when we work together with solidarity and in coordination. Our efforts to further increase vaccinations across the EU will continue unabated. We will continue to support in particular those Member States that are continuing to face challenges. We need to close the immunity gap and the door for new variants and to do so, vaccinations must win the race over variants.”
Global cooperation and solidarity
The rapid, full vaccination of all targeted populations – in Europe and globally – is key to controlling the impact of the pandemic. The EU has been leading the multilateral response. The EU has exported about half of the vaccines produced in Europe to other countries in the world, as much as it has delivered for its citizens.  Team Europe has contributed close to €3 billion for the COVAX Facility to help secure at least 1.8 billion doses for 92 low and lower middle-income countries. Currently, over 200 million doses have been delivered by COVAX to 138 countries.
In addition, Team Europe aims to share at least 200 million more doses of vaccines secured under the EU’s advance purchase agreements to low and middle-income countries until the end of 2021, in particular through COVAX, as part of the EU sharing efforts. 
Preparing for new variants
Given the threat of new variants, it is important to continue ensuring the availability of sufficient vaccines, including adapted vaccines, also in the coming years. That is why the Commission signed a new contract with BioNTech-Pfizer on 20 May, which foresees the delivery of 1.8 billion doses of vaccines between the end of the year and 2023. For the same purpose, the Commission has also exercised the option of 150 million doses of the second Moderna contract. Member States have the possibility to resell or donate doses to countries in need outside the EU or through the COVAX Facility, contributing to a global and fair access to vaccines across the world. Other contracts may follow. This is the EU’s common insurance policy against any future waves of COVID-19.
Background
A safe and effective vaccine is our best chance to beat coronavirus and return to our normal lives. The European Commission has been working tirelessly to secure doses of potential vaccines that can be shared with all.
The European Commission has secured up to 4.6 billion doses of COVID-19 vaccines so far and negotiations are underway for additional doses. The Commission is also working with industry to step up vaccine manufacturing capacity.
At the same time, the Commission has started work to tackle new variants, aiming to rapidly develop and produce effective vaccines against these variants on a large scale. The HERA Incubator helps in responding to this threat.
Compliments of the European Commission.
The post Coronavirus: 70% of the EU adult population fully vaccinated first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

The system for protecting EU businesses from dumped and subsidised imports continued to function well in 2020 thanks to the EU’s robust and innovative ways of using trade defence instruments (TDI), despite the practical challenges presented by the COVID-19 pandemic. This is part of the European Commission’s new trade strategy, whereby the EU takes a more assertive stance in defending its interests against unfair trade practices.
Executive Vice-President and Commissioner for Trade Valdis Dombrovskis said: “The EU needs effective tools to defend ourselves when we face unfair trade practices. This is a key pillar of our new strategy for an open, sustainable and assertive trade policy. We have continued to use our trade defence instruments effectively during the COVID-19 pandemic, improved their monitoring and enforcement, and tackled new ways of giving subsidies by third countries.  We will not tolerate the misuse of trade defence instruments by our trading partners and we will continue to support our exporters caught up in such cases. It is crucial that our companies and their workers can continue to rely on robust trade defence instruments that protect them against unfair trade practices.”
At the end of 2020, the EU had 150 trade defence measures in force, in line with previous years’ activity levels with an increase in the number of cases lodged towards the end of 2020. In addition, for the first time, the Commission addressed a new type of subsidy given by third countries in the form of cross-border financial support that was a serious challenge for EU companies.
The following are the main trade-defence highlights of 2020:
Continued high level of EU trade defence activity
Due to the COVID-19 pandemic, the Commission had to swiftly introduce temporary changes to its work practices, especially concerning on-the-spot verification visits. This allowed the Commission to continue applying the instruments at the highest standards without a drop in the levels of activity. At the end of 2020, the 150 trade defence measures that the EU had in place – 10 more than at the end of 2019 – included 128 anti-dumping, 19 anti-subsidy and 3 safeguard measures.
In 2020, the Commission launched:

15 investigations, compared to 16 in 2019, and imposed 17 provisional and definitive measures, compared to 15 in 2019;
28 reviews, compared to 23 the previous year.

The highest number of EU trade defence measures concerns imports from:

China (99 measures);
Russia (9 measures);
India (7 measures);
The United States (6 measures).

Tackling new types of subsidies
In 2020, the Commission strengthened its action against subsidies granted by third countries. In particular, the Commission imposed countervailing duties on cross-border financial support given by China to Chinese-owned companies manufacturing glass fibre fabrics and continuous filament glass fibre products based in Egypt for export to the EU.
This means that, for the first time, the Commission addressed cross-border subsidies given by a country to enterprises located in another country for exports to the EU.
Support to, and defence of, EU exporters facing trade defence investigations in export markets
The importance of monitoring trade defence action taken by third countries was again evident in 2020. The number of trade defence measures in force by third countries affecting EU exporters reached its highest level since the Commission started this monitoring activity, with 178 measures in place. In addition, the number of cases initiated also increased in 2020, with 43 compared to 37 the previous year.
The report outlines the Commission’s activities to ensure that WTO rules are correctly applied and procedural errors and legal inconsistencies are addressed in order to avoid any misuse of trade defence instruments by third countries. The Commission’s interventions yielded success in some cases where measures were not ultimately imposed, affecting important EU export products such as ceramic tiles and fertilisers.
Strong focus on monitoring and enforcement
There was a renewed focus on the monitoring of measures in place in 2020, including changes to surveillance practices to ensure the ongoing effectiveness of the trade defence instruments. This also involved customs authorities, EU industry, and in certain instances, the European Anti-Fraud Office (OLAF). Continuing its efforts to address instances where exporters tried to avoid measures, the Commission initiated three anti-circumvention investigations in 2020 and completed five such investigations during the year, where measures were extended in four cases to also address imports from third countries where transhipment was found to have taken place.
The report also recalls the findings of the European Court of Auditors from July 2020, which confirmed the successful enforcement of the EU’s trade defence instruments by the Commission. The report made a number of recommendations to further strengthen the Commission’s response to the challenges posed by unfairly traded imports that the Commission has started to implement in 2020, such as improving monitoring to ensure the effectiveness of measures.
Compliments of the European Commission.
The post An assertive trade policy: EU’s defence measures against unfair trade practices remained effective in 2020 first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

Value of G20 merchandise trade at new high in Q2 2021 but signs of easing growth
The second quarter of 2021 saw international merchandise trade for the G20, as measured in seasonally adjusted current US dollars, reach a new high following the record levels already posted in Q1 2021. G20 merchandise exports and imports increased by 4.1% and 6.4% in Q2 2021 compared to the previous quarter, showing a slowdown compared with the rates posted in Q1 2021 (8.6% and 8.5% for exports and imports, respectively). Like in the previous quarter, rising commodity prices explain a large part of the increase, as congestion in international shipping and supply issues around semiconductors placed further pressure on the price of traded goods.
The G20 economies more reliant on exports of primary commodities saw strong export growth in Q2 2021, a combination of increasing prices, limited global supply (e.g. copper) and strong demand (particularly from China, Japan and Korea). Australia’s exports increased 10.0% in Q2 2021, on the back of rising sales of cereals, metals and coal. Brazilian exports rose by 29.4%, driven by iron ores and soybeans. Russian exports grew 30.7% in Q2 2021, mostly benefiting from increasing energy prices.
Merchandise trade values in North America reached an all-time high in Q2 2021. Canada’s exports were up 4.7%, driven by energy and forestry products. Imports rose by 3.6%, with metals and pharmaceutical products playing a large part. Mexico also recorded solid growth in the quarter, exports up 3.3% and imports up 5.1%. The United States recorded growth of 6.8% for exports in Q2 2021, led by aircraft, pharmaceuticals and semiconductors and with strong demand from Canada and Mexico. Imports in the quarter rose 4.2%, with robust imports of mobile phones and despite sluggish purchases of vehicles.
European G20 economies saw international trade increase notably in aircraft, agriculture products and pharmaceuticals, fuelled in particular by demand from China and the United States. In Q2 2021 the European Union recorded export growth of 2.8% and import growth of 5.7% (France 1.3% and 2.9%, Germany 1.3% and 6.3%, and Italy 4.0% and 6.4%). In the United Kingdom, exports rose 12.3% and imports 11.3% in Q2 2021, a strong rebound following the Q1 slowdown.
The rise in commodity prices was a factor in imports increasing faster than exports in the East Asian G20 economies in Q2 2021. Exports from Japan and Korea grew by 2.7% and 2.2%, while imports rose by 7.4% and 11.8%, respectively, with trade in vehicles and parts driving the increase in particular for Korea. Following the staggering (18.6%) growth in the previous quarter, Chinese exports declined by 2.5% in Q2. Imports, instead, continued to expand (up 10.9%), with purchases of agricultural products, metals and semiconductors remaining strong.
G20 trade in services growth gaining pace in Q2 2021
Q2 2021 growth in services exports and imports for the G20 aggregate is estimated (based on preliminary information available for a subset of the G20 economies) at around 4.5% and 4.0%, respectively, compared to the previous quarter and measured in seasonally adjusted US dollars. This compares to the slower rate recorded in Q1 (2.9% for exports and imports).
The further surge in shipping costs in Q2 2021 continued to boost trade in transport services across most G20 economies, while trade in digitally deliverable services, such as telecommunications, computer and business services, remained strong. Travel, although still severely affected by the COVID-19 containment measures and threatened by the emergence of variants, showed an uptick in Q2.
Exports of services from the United States and Canada grew by 3.6% and 1.7%, respectively, in Q2 2021. Imports recorded faster growth (7.2% and 8.0%), driven by travel in the UnitedStates and by financial services in Canada. Services trade in Brazil also experienced strong growth, with exports and imports expanding by 6.8% and 5.5%, respectively.
In Europe, both exports and imports of services picked up in Germany in Q2, up by respectively 4.2% and 5.4%, with imports fuelled by a nearly 30% increase in travel expenditure. Travel and financial services also boosted French exports of services (up 5.6%), while imports remained almost flat (up 0.4%) on lower purchases of transport services. Conversely, trade in services contracted in the United Kingdom (minus 0.4% and minus 2.2% for exports and imports). Russian exports rose 5.7% while imports contracted by 7.3% (due to a slowdown in purchases of business services). Turkey’s exports and imports increased by 5.8% and 2.3%.
With the exception of Australian exports (down 0.5%), trade in services continued to expand markedly in Asia‑Pacific. Exports and imports increased by 8.1% and 15.9%, respectively, in Korea, with a jump in travel imports (up 20.1%) adding to the continuing growth in business, telecommunication and computer services. Similarly, Japanese exports and imports rose by 4.7% and 8.4%, with travel and business services expanding at a faster rate on the import side. Chinese exports increased by 7.4%, largely driven by soaring transport receipts, while imports rose 2.3% on higher purchases of business and transport services. A partial and temporary border opening boosted Australia’s travel imports (4.5 times higher than in the previous quarter, but still at very low levels), which contributed to the 8.9% increase in imports of total services.
Compliments of the OECD.
The post Value of G20 merchandise trade at new high in Q2 2021, trade in services growth gaining pace first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.