1 Introduction
The UK referendum on EU membership in 2016 has set the course for the most significant change to the relationship between the United Kingdom and its closest trading partners for decades. The primary interest from the ECB’s perspective is to understand the likely impact on trade of the departure of the United Kingdom from the European Union, as the United Kingdom has long been one of the euro area’s major export markets.
This article reviews the development of UK import demand and balance of payments since the referendum in order to assess the likely implications for euro area foreign demand.[2] It focuses on early insights into factors which have affected UK imports in the period between the referendum and the start of the coronavirus (COVID-19) pandemic. The departure of the United Kingdom from the EU could potentially result in some disruption to euro area export growth in the coming years if, for instance, UK import demand is reduced or diverted as a consequence of Brexit.
The United Kingdom has long been a major trading partner for the euro area, accounting for around 14% of euro area foreign demand over the period 2016-18 (Chart 1). Until the mid-2010s, when the 2015 general election paved the way for the referendum, the United Kingdom had been the euro area’s largest single trading partner – even ahead of the United States. Developments in foreign demand are a major determinant of euro area GDP growth as non-euro area imports and exports of goods and services amount to around half of euro area GDP.

Chart 1
Euro area export destinations

(share of exports of goods and services, 2016-18 average)
Source: ECB staff calculations.
Note: RoW stands for the rest of the world.

Since the 2016 referendum, the UK’s share of euro area foreign demand has fallen somewhat, largely reflecting a notable slowdown in the growth of UK imports from the EU and, correspondingly, a sizeable drag on euro area exports (Chart 2). A marked deceleration in the growth of UK import demand since the end of 2017 has exacerbated a broader slowdown in the growth of non-euro area foreign demand, which has weighed on euro area export growth. In addition, uncertainties surrounding the various Brexit deadlines throughout much of 2019 and 2020 resulted in considerable quarterly volatility in the UK component of euro area foreign demand.

Chart 2
Euro area exports to non-euro area countries

(annual percentage changes of three-month moving averages, monthly data)
Sources: Eurostat and ECB staff calculations.
Notes: Exports of goods and services. The latest observation is for December 2020.

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Compliments of the European Central Bank.
The post Understanding post-referendum weakness in UK import demand and UK balance of payments risks for the euro area first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

Are the euro area’s economic prospects likely to worsen in a scenario where coronavirus variants continue to multiply?
The current situation is bittersweet. The first quarter was weaker than we expected three months ago. On the other hand, the pace of vaccination is gaining momentum across Europe. This is good news, because it will have a major impact on the economy. For the time being, it is estimated that growth will be around 4%. We expect the second half of the year to be very positive, even if there is still uncertainty. We note elsewhere that as soon as vaccination accelerates – like in the United Kingdom, Israel or the United States – the situation normalises rapidly. I hope that we will be in a much better situation by early summer.
Mario Draghi presented a €248 billion recovery plan which also contains important structural reforms. The Italian Prime Minister has said that Italy’s destiny is on the line. You worked alongside him as Vice-President for two years at the ECB: in your opinion, can Draghi restore trust in Italy?
Mario Draghi has made a very important contribution to Europe and is now making a very important contribution to Italy. For the time being, his main contribution to Italy is that he is leading a unity government that has the support of a very large majority in Parliament. That’s very important. And the recovery plan for Italy will be key to determining the future of its economy. I also think that Draghi’s prestige and reputation have provided the glue for the unity we are seeing in the Italian Parliament. This is an excellent signal for Europe as a whole.
You knew him in your capacity as Vice-President. What’s his best quality?
He has extraordinary leadership skills, which he clearly demonstrated as President of the ECB. And this is the best quality to allow a country to look ahead with confidence.
You said that Italy’s recovery plan is important for the success of the country. As Europe’s largest plan, is it not also crucial for the continent’s recovery?
One of the problems associated with the impact of the pandemic is that its effects were very divergent. In 2020 the average decline in GDP was just under 7%. However, in the Nordic countries, the contraction stopped at 4-5%, while in countries such as Spain it reached 11%. Fiscal situations also differ widely between northern and southern Europe. That’s why NextGenerationEU (NGEU) is so important: to avoid overly large gaps between countries. It is also important that it will be financed by the common issuance of bonds, and that part of the funds will be allocated in the form of grants. Lastly, NGEU has been designed to help above all the countries most affected by the pandemic. These three elements make the plan vital. NGEU does not simply seek to be a source of funding for short-term projects, but also to stimulate potential growth in the medium term. This is also why the funds will have to be accompanied by reforms to improve the productivity and competitiveness of the Member States. That’s also why it needs to be implemented and launched very quickly. The Commission will also need to approve the different plans quickly.
European countries like Italy will also re-emerge from the pandemic with huge public debt. Some are asking for it to be reduced. What do you think?
This isn’t a solution. Not only would it be an infringement of the Treaty, and therefore unacceptable for the ECB, but it would also be an economic mistake.
Why?
On the one hand, if the debt were cancelled, national central banks would need to use the profits they make to cover the losses instead of using them to pay dividends to the governments, as they now do at the end of each year. And what’s more, a decision of this kind would jeopardise the credibility of the central bank and undermine the effectiveness of our policies.
The German Federal Constitutional Court in Karlsruhe gave the green light, conditional on the German “own resources” law. It is feared that the final ruling will undermine any ambition to move forward with eurobonds in the future. Is this good or bad news?
It’s not for us to comment on court judgments. But if the European Commission is ever able to issue joint bonds for the first time, that will be because there was a political will to do so. And this seems to me to be an important step forward.
So eurobonds would be something positive.
When an agreement was reached on NGEU and its forms of financing, the markets reacted very positively. This happened because they saw the political will behind this agreement and because they understood that European governments were firmly committed to doing everything they could to deal with the consequences of the pandemic. We need to complete monetary union. And we need to complete banking union with the European deposit insurance scheme. Furthermore, we need to work on the capital markets union and to converge towards a European instrument to pursue a common fiscal policy.
China’s economy is picking up again; soon America’s will too. How risky is it that Europe’s recovery is lagging behind?
The situation in the United States is more comparable to the situation we have here in Europe. Still, in 2020 economic activity in the United States contracted only half as much as in the euro area. And now, according to the Federal Reserve, the US economy will grow very rapidly, by 6.5%. If you compare monetary policy programmes and fiscal stimulus on both sides of the Atlantic, they are similar. In 2020 the fiscal effort in Europe reached 8 percentage points of GDP, which was helped along by automatic stabilisers. And now we have NGEU, a generous and ambitious plan. The main difference is that it has not got off the ground yet, but I hope that it soon will, and we will then be able to quickly bridge the gap with the United States.
Nevertheless, this gap already seems to be having some unwanted side effects, at least for the ECB. The markets are jittery, they are worried inflation could increase in the United States and spread to Europe. Are these concerns justified?
The US recovery started earlier and it’s true that it has led to an increase in nominal yields for government bonds. This is natural given that we are starting to see things get back to normal. The vaccination rollout in the United States has been very fast, and their fiscal stimulus programme is very ambitious. And alongside the recovery, the markets also expect inflation to increase, which puts pressure on yields. At the ECB we have tried to counter this and we have succeeded: European bond yields have been very calm since March. The markets have understood that the United States are further ahead in the recovery cycle and that, based on the economic fundamentals, the pressure on yields was unjustified.
But there are still fears that the Fed could soon be forced to take a less accommodative stance, which would ramp up the pressure on the ECB.
The normalisation of monetary policy should go hand in hand with the normalisation of the economy. Once the pandemic is over and the economy starts to get back to normal, then obviously monetary policy will also have to start doing the same. An emergency programme like the pandemic emergency purchase programme is temporary by definition and designed to deal with the economic fallout from the pandemic. But – and this is key – any withdrawal of these extraordinary measures must occur in step with economic developments, and we need to pay extremely close attention to this. Phasing out stimuli too soon could stymie the recovery. At the same time, prolonging emergency measures for too long may run the risk of moral hazard as well as the zombification of parts of the European economy. So we need to take a balanced approach.
Some members of the ECB Governing Council are already calling for tapering in the light of a recovery in the second half of the year. Are they right to do so?
I don’t have any preconceived notions in this respect. The way in which the economy develops will be the deciding factor. If by speeding up the vaccination campaign we manage to have vaccinated 70% of Europe’s adult population by the summer and the economy starts to pick up speed, we may also start to think about phasing out the emergency mode on the monetary policy side. The manufacturing sector is already doing very well; services are still lagging behind but should soon be able to recover and close the gap with the industrial sector. We hope that in a year’s time the pandemic will be behind us, social distancing will be a memory and the economy will be back to pre-pandemic levels: monetary policy will have to adjust to that.
So you can think about raising interest rates?
No, that’s not what I said, I was referring to a cautious exit from the emergency programme, and I said that it should be managed with a great deal of prudence.
Are you concerned about the strengthening of the euro?
As you are aware, the exchange rate is not one of our monetary policy objectives. But it is definitely one of the most important variables when looking at macroeconomic trends. So we monitor it very closely to see what effect it might have on growth and inflation.
What course do you think inflation will take over the next few months?
We expect inflation to rise temporarily. It may even exceed 2% towards the end of the year, but this will only be because of temporary factors, such as soaring energy prices. On average, it will be 1.5% this year. We expect it to slow in 2022 and to stand at 1.4% in 2023.
As a result of NGEU, do you truly believe that the risk of countries like Germany speeding ahead and leaving the others behind has been averted? Germany has also invested a lot of its own money in the economy and had the fiscal space to do so. If the gaps between countries are too great, will this once again threaten the euro area’s resilience?
Excessive divergences between countries do indeed pose a threat to the euro area’s resilience. But the idea behind the recovery plan is exactly that, to prevent these excessive divergences from occurring. That’s why it was important that NGEU earmark more funds for the hardest hit countries like Italy and Spain. And this is especially true for countries such as Spain, whose economy is highly dependent on the services sector, which has been hit hardest by the pandemic.
Some people fear that the end of the pandemic – and debt moratoria – could trigger an avalanche of bankruptcies. Do you share these concerns?
It’s true that at the beginning of the crisis, one of the biggest concerns was the possibility that the crisis itself might be followed by a wave of bankruptcies, mainly in the tourism sector and services in general. That’s why it was important for some countries, including Italy and Spain, to provide financial support to the hardest hit sectors from the outset and decide to grant debt moratoria. This was also important to prevent the emergence of a vicious circle between sovereigns, banks and corporates. Again, in this situation, it will be crucial that these measures are withdrawn gradually and with a great deal of prudence after the crisis. Otherwise we run the risk of choking the recovery.
Do you think there is a risk of a new wave of non-performing loans and the zombification of part of the banking system?
As you know, there is always a lag between economic developments and changes to levels of non-performing loans. There will most likely be an increase in non-performing loans in the second half of the year, but we don’t expect it to be as acute as we feared at the start of the pandemic. Still, banks need to take timely action to minimise any cliff effects when the moratoria measures begin to expire.
There has been much talk of a digital euro. But following Facebook’s announcement that it would launch its own digital currency, “Diem”, is there a risk that Europe might be too late? Is the currency and the very existence of central banks under threat?
Central banks have played a key role worldwide in dealing with the pandemic and we must make sure we are also well equipped to deal with any future challenge, on all fronts. Our current focus is to deepen the analysis of how a digital euro should work and what it should look like to benefit European citizens and our economy. The Governing Council will decide around mid-2021 whether to initiate a project for the possible launch of a digital euro.
Compliments of the European Central Bank.

The post ECB | Interview with Luis de Guindos, conducted by Tonia Mastrobuoni on 27 April 2021 first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

Today, the Commission is proposing that Member States ease the current restrictions on non-essential travel into the EU to take into account the progress of vaccination campaigns and developments in the epidemiological situation worldwide.
The Commission proposes to allow entry to the EU for non-essential reasons not only for all persons coming from countries with a good epidemiological situation but also all people who have received the last recommended dose of an EU-authorised vaccine. This could be extended to vaccines having completed the WHO emergency use listing process. In addition, the Commission proposes to raise, in line with the evolution of the epidemiological situation in the EU, the threshold related to the number of new COVID-19 cases used to determine a list of countries from which all travel should be permitted. This should allow the Council to expand this list.
At the same time, the emergence of coronavirus variants of concern calls for continued vigilance. Therefore as counter-balance, the Commission proposes a new ‘emergency brake’ mechanism, to be coordinated at EU level and which would limit the risk of such variants entering the EU. This will allow Member States to act quickly and temporarily limit to a strict minimum all travel from affected countries for the time needed to put in place appropriate sanitary measures.
Non-essential travel for vaccinated travellers
The Commission proposes that Member States lift restrictions on non-essential travel for vaccinated persons travelling to the EU. This reflects the latest scientific advice showing that vaccination considerably helps to break the transmission chain.
Member States should allow travel into the EU of those people who have received, at least 14 days before arrival, the last recommended dose of a vaccine having received marketing authorisation in the EU. Member States could also extend this to those vaccinated with a vaccine having completed the WHO emergency use listing process. In addition, if Member States decide to waive the requirements to present a negative PCR test and/or to undergo quarantine for vaccinated persons on their territory, they should also waive such requirements for vacccinated travellers from outside the EU.
This should be facilitated once the Digital Green Certificate becomes operational, in line with the rules the Commission proposed on 17 March. In particular, travellers should be able to prove their vaccination status with a Digital Green Certificate issued by Member States’ authorities on an individual basis, or with another certificate recognised as equivalent by virtue of a Commission adequacy decision.
Until the Digital Green Certificate is operational, Member States should be able to accept certificates from non-EU countries based on national law, taking into account the ability to verify the authenticity, validity and integrity of the certificate and whether it contains all relevant data.
Member States could consider setting up a portal allowing travellers to ask for the recognition of a vaccination certificate issued by a non-EU country as reliable proof of vaccination and/or for the issuance of a Digital Green Certificate.
Children who are excluded from vaccination should be able to travel with their vaccinated parents if they have a negative PCR COVID-19 test taken at the earliest 72 hours before arrival area. In these cases, Member States could require additional testing after arrival.
Full lifting of non-essential travel restriction from more countries
Non-essential travel regardless of individual vaccination status is currently permitted from 7 countries with a good epidemiological situation. This list is decided by the Council on the basis of epidemiological criteria contained in the current recommendation.
The Commission is proposing to amend the criteria to take into account the mounting evidence of the positive impact of vaccination campaigns. The proposal is to increase the threshold of 14-day cumulative COVID-19 case notification rate from 25 to 100. This remains considerably below the current EU average, which is over 420.
The adapted threshold should allow the Council to expand the list of countries from which non-essential travel is permitted regardless of vaccination status, subject to health-related measures such as testing and/or quarantine. As now, the Council should review this list at least every 2 weeks.
Essential travel to remain permitted
Those travelling for essential reasons, including notably healthcare professionals, cross-border workers, seasonal agricultural workers, transport staff and seafarers, passengers in transit, those travelling for imperative family reasons or those coming to study should continue to be allowed to enter the EU, regardless of whether they are vaccinated or which country they come from. The same applies to EU citizens and long-term residents as well as their family members. Such travel should continue to be subject to health-related measures, such as testing and quarantine as decided by Member States.
‘Emergency brake’ to counter the spread of variants
When the epidemiological situation of a non-EU country worsens quickly and in particular if a variant of concern or interest is detected, a Member State can urgently and temporarily suspend all inbound travel by non-EU citizens resident in such a country. The only exceptions in this case would be healthcare professionals, transport personnel, diplomats, transit passengers, those travelling for imperative family reasons, seafarers, and persons in need of international protection or for other humanitarian reasons. Such travellers should be subject to strict testing and quarantine arrangements even if they have been vaccinated.
When a Member State applies such restrictions, the Member States meeting within the Council structures should review the situation together in a coordinated manner and in close cooperation with the Commission, and they should continue doing so at least every 2 weeks.
Next steps
It is now for the Council to consider this proposal. A first discussion is scheduled at technical level in the Council’s integrated political crisis response (IPCR) meeting taking place on 4 May, followed by a discussion at the meeting of EU Ambassadors (Coreper) on 5 May.
Once the proposal is adopted by the Council, it will be for Member States to implement the measures set out in the recommendation. The Council should review the list of non-EU countries exempted from the travel restriction in light of the updated criteria and continue doing so every 2 weeks.
Background
A temporary restriction on non-essential travel to the EU is currently in place from many non-EU countries, based on a recommendation agreed by the Council. The Council regularly reviews, and where relevant updates, the list of countries from where travel is possible, based on the evaluation of the health situation.
This restriction covers non-essential travel only. Those who have an essential reason to come to Europe should continue to be able to do so. The categories of travellers with an essential function or need are listed in Annex II of the Council Recommendation. EU citizens and long-term residents as well as their family members should also be allowed to enter the EU.
Following a proposal by the Commission, the Council agreed on 2 February 2021 additional safeguards and restrictions for international travellers into the EU, aimed at ensuring that essential travel to the EU continues safely in the context of the emergence of new coronavirus variants and the volatile health situation worldwide. These continue to apply.
On 17 March 2021, in a Communication on a common path to Europe’s safe re-opening, the Commission committed to keeping the operation of the Council Recommendation on the temporary restriction on non-essential travel into the EU under close review, and propose amendments in line with relevant developments. Today’s proposal updates the Council recommendation.
In parallel to preparing for the resumption of international travel for vaccinated travellers, the Commission proposed on 17 March 2021 to create a Digital Green Certificate, showing proof that a person has been vaccinated against COVID-19, received a negative test result or recovered from COVID-19, to help facilitate safe and free movement inside the EU. This proposal also provides the basis for recognising non-EU countries’ vaccination certificates.
The Council Recommendation on the temporary restriction on non-essential travel into the EU relates to entry into the EU. When deciding whether restrictions on non-essential travel can be lifted for a specific non-EU country, Member States should take account of the reciprocity granted to EU countries. This is a separate issue from that of the recognition of certificates issued by non-EU countries under the Digital Green Certificate.
The Council recommendation covers all Member States (except Ireland), as well as the 4 non-EU states that have joined the Schengen area: Iceland, Liechtenstein, Norway and Switzerland. For the purpose of the travel restriction, these countries are covered in a similar way as the Member States.
The latest information on the rules applying to entry from non-EU countries as communicated by Member States are available on the Re-open EU website.
For More Information
Proposal for a Council Recommendation on the temporary restriction on non-essential travel into the EU and the possible lifting of such restriction, 3 May 2021
Travel during the coronavirus pandemic
Compliments of the European Commission.
The post Coronavirus: Commission proposes to ease restrictions on non-essential travel to the EU while addressing variants through new ‘emergency brake’ mechanism first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

In the second half of 2020 global economic activity and trade staged a sharp rebound driven mainly by the manufacturing sector, while services sector activity was and has remained subdued. In the third quarter of 2020 global economic activity recovered swiftly as a result of the easing of the pandemic and associated containment measures as well as the significant policy support deployed at the peak of the crisis. Despite a slowdown in the last quarter of the year, reflecting a worsening of the pandemic, the pace of the global economic recovery in the second half of 2020 was overall stronger than initially estimated (ECB 2021, IMF 2021).[1] It was driven to a significant extent by the manufacturing sector (Chart A, upper panel), as production activities restarted and the demand for goods recovered. At the same time the services sector, and especially the most contact-intensive activities, lagged behind owing to continued social distancing and some remaining limitations. These also hit the travel and tourism sectors particularly hard. Following the collapse in global trade in the first half of 2020 (ECB 2020), global merchandise imports recovered, and by November 2020 they had reached their pre-crisis level again. [2] However, the recovery has progressed at different speeds across countries, with China – the first country to bring the virus under control – already returning to its pre-crisis level in June 2020 (Chart A, lower panel). It was only towards the end of the year that the recovery in trade started to spread to other key global economies.

Chart A
Developments in global economic activity and trade
Global merchandise trade and PMI indices
(left-hand scale year-on-year, percentage changes; right-hand scale diffusion indices)

Global merchandise trade and country contributions
(left-hand scale index, December 2019 = 100; right-hand scale contributions)
Sources: Markit, CPB and ECB calculations.
Notes: The global aggregate excludes the euro area. The latest observations are for March 2021 (PMI) and January 2021 (global merchandise trade).

The sharp rebound in global manufacturing activity caused a strong rise in international orders and resulted in some supply bottlenecks. Supply frictions are evidenced by rising supplier delivery times, which in turn are reflected in higher container shipping costs and, more generally, in higher input prices. In particular, the Global Purchasing Managers’ Indices (PMIs) for different manufacturing sub-sectors show how the sharp rebound in new orders for inputs of production since the trough in the second quarter of 2020 has been accompanied by a strong rise in supplier delivery times and an increase in input price pressures (Chart B). The sectors experiencing stronger disruptions in supply chains are basic materials, machinery and equipment, and cars. A particularly severe shortage in the supply of semiconductors is causing delays in car production globally.[3]

Chart B
Supplier delivery times and input prices

Global PMI Indices (diffusion indices)
(y-axis – PMI suppliers’ delivery times (reversed); x-axis – PMI new export orders, change between February 2021 and Q2 2020)
Sources: IHS Markit, Haver analytics and ECB staff calculations.
Notes: The size of the bubbles is proportional to the change in the PMI index for input prices between February 2021 and Q2 2020. Grey dots reflect increases in the PMI index for input prices below 10, yellow dots reflect increases between 10 and 15 and blue dots reflect increases in the PMI index greater than 15.

Rising ocean freight shipping costs are another sign of supply bottlenecks (Chart C, upper panel). Since the second half of 2020, global freight shipping costs have been on a steady recovery path from the lows reached in the midst of the pandemic. In recent months, however, they have reached levels not seen since after the Great Financial Crisis, while growth rates have risen above those observed since 2015. At the same time, transport costs on shipping routes from Asia and China to Europe and the Mediterranean, as well as the United States, have experienced a particularly sharp rise since the second half of the year. They appear to have peaked recently (Chart C, lower panel). Two factors are associated with the increase in shipping costs. On the one hand, the strong rise in demand for intermediate inputs on the back of stronger manufacturing activity raised the demand for Chinese exports and the demand for container shipments. At the same time, shortages of containers at Asian ports have exacerbated supply bottlenecks and further increased shipping costs as companies in Asia are reported to be paying premium rates to get containers back.[4] Reportedly, ports in Europe and the United States are congested amid logistics disruptions related to the coronavirus (COVID-19) pandemic and idle containers remain in several ports on the back of the uneven recovery of trade. Notably, available data point to a decrease in container ship traffic from important Asian ports, with the Asia-EU trade lane having experienced the biggest decrease (as indicated by the largest reduction in Chart D). In this context, the reliability of the schedules of global container services has declined to the lowest levels on record, according to new data from SeaIntelligence Consulting.[5] The rise in shipping costs has been further exacerbated by limited air freight capacity as international flight volumes have plunged due to travel restrictions and flight cancellations.

Chart C
Global and regional shipping costs

Global shipping costs
(year-on-year, percentage changes)

Freightos Baltic Index
(USD per forty-foot equivalent unit shipping container, contributions of sub-indices)
Sources: Bloomberg, Refinitiv, and ECB calculations.
Notes: The latest observations are for March 2021. The World Container Index (WCI) is a composite indicator of container freight rates for eight major trade lanes between Asia, Europe and North America. The China (Export) Containerized Freight Index (CCFI) is a composite indicator of container freight rates from all major ports in China. The Harpex is a composite indicator of weekly container shipping rate changes in the time charter market for eight different classes of container ships. The Freightos Baltic Global Container Freight Index (FBX) is a composite indicator of container freight spot rates across twelve major global trade lanes.

Chart D
Shipping capacity

(deadweight tons (DWT); 1 DWT=1,000 kilograms)
Sources: Bloomberg, IHS and ECB calculations.
Notes: Container ship vessels include container ro-ro cargo, container, deck cargo and general cargo vessels. Port of departure includes major Asian ports (Shanghai, Singapore, Shenzhen, Ningbo, Busan, Hong Kong and Klang). Port of destination, in addition to major Asian ports, includes major European ports (Rotterdam, Antwerp and Hamburg), major North American ports (Los Angeles, Long Beach and New York/New Jersey) and major South American ports (Santos, Colon and Cartagena). Shaded areas refer to the volume of traffic – when vessels are fully loaded – in April 2020, whereas the solid areas refer to the volume of traffic in February 2021. The thickness of edges is proportional to the aggregate deadweight tonnage (DWT) and percentages refer to the share of each destination out of total outbound DWT from Asia in April 2020 (shaded area) and February 2021 (solid areas) respectively.

The rise in global container shipping costs at the end of 2020 largely reflected stronger demand (Chart E). We use econometric analysis to disentangle the relative importance of the demand and supply forces.[6] The analysis suggests that at the start of 2020 supply constraints explained rising shipping costs, as containers were grounded as a consequence of the measures adopted to contain the spread of COVID-19. While such pressures persisted in the second quarter of the year, amid stringent containment measures globally, these were more than offset by the great trade collapse which led to a sharp decline in the Harpex. Shipping costs remained subdued in the third quarter as supply chain disruptions begun to subside, and global demand was on a path of gradual recovery and feeding only slowly into higher trade flows.[7] In the fourth quarter, however, the rise in shipping costs reflected above all the more vigorous recovery in global demand, and only to a smaller extent supply constraints in the shipping industry.[8] The surge in global oil and fuel prices further contributed to the spike in shipping costs.

Chart E
Historical decomposition of global shipping costs

(percentage point deviations from trend, contributions)
Sources: ECB staff calculations.
Notes: The decomposition is based on an SVAR model that employs: total shipping containers (measured in twenty-foot equivalent units (TEUs)), Harper Peterson Charter Rates Index (Harpex) of shipping costs and fuel prices. The model is identified using sign restrictions whereby a positive demand shock leads to an increase in both TEUs and the Harpex, while a positive supply shock leads to an increase in TEUs and a decline the Harpex (both have no contemporaneous impact on the oil price). An oil price shock leads to an increase in the oil prices and the Harpex, and a decline in TEUs. The model is estimated on monthly data (expressed in annual dynamics) from January 2013 to January 2021.

The surge in shipping costs raised the question to what extent these are passed on through the pricing chain. Importers commonly pass on part of rising transportation costs to consumers through higher prices, which could give rise to inflationary pressures. In order to gauge the potential magnitude of this effect, a structural vector autoregressive (SVAR) model has been estimated for the US economy, following Herriford et al. (2016).[9] The analysis suggests that after one year, the pass-through of shipping prices into US Personal Consumption Expenditures (PCE) inflation is rather limited.[10] Even a 50% annual increase in the Harpex – similar to that experienced leading up to January 2021 – could raise annual PCE inflation by up to 0.25 percentage points one year later. The size of this effect is also explained by the fact that international shipping costs make up only a relatively small share of the final cost of manufacturing output.[11] Overall, given that supply challenges are largely driven by transportation rather than production constraints, the rise in transportation costs is expected to have only a modest impact on global economic activity.[12]
As supply adjusts to higher demand freight costs might decline again. Overall, higher shipping costs and longer delivery times have caused temporary frictions in supply chains. However, as supply adjusts to increased demand, these bottlenecks should delay but not derail the global recovery.[13] At the same time, as lockdowns are lifted and consumers rebalance their spending towards services, some easing of the current supply bottlenecks should be expected, with knock-on effects on shipping costs.
Authors:

Maria Grazia Attinasi
Alina Bobasu
Rinalds Gerinovics

Compliments of the European Central Bank.
The post ECB | What is driving the recent surge in shipping costs? first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

The COVID-19 crisis has resulted in the largest decrease in taxes on wages since the global financial crisis of 2008-09, according to a new OECD report.
Taxing Wages 2021 shows that declining household incomes coupled with tax reforms linked to the pandemic are driving widespread declines in effective taxes on wages across the OECD.
The report highlights record falls across the OECD during 2020 in the tax wedge – the total taxes on labour paid by both employees and employers, minus family benefits, as a percentage of the labour cost to the employer.
The tax wedge for a single worker at the average wage was 34.6% in 2020, a decrease of 0.39 percentage points from the previous year. This is a significant fall, but is smaller than the decreases seen in the global financial crisis – 0.48 percentage point in 2008, and 0.52 percentage points in 2009. The tax wedge increased in 7 of the 37 OECD countries over the 2019-20 period and fell in 29, mainly due to lower income taxes.
The drop in the tax wedge was even more significant for households with children, bringing tax rates on these family types to new lows. The average tax wedge for a one-earner couple at the average wage with children in 2020 was 24.4%, a decrease of 1.1 percentage points versus 2019. This is the largest fall and lowest level seen for this household type since the OECD started producing Taxing Wages in 2000.

Between 2019 and 2020, the tax wedge for this household type decreased in 31 countries, and rose in only 6. It decreased by more than 1 percentage point in 16 countries. The largest decreases were in Lithuania, the United States, Poland, Italy, Canada and Korea. The only increase over 1 percentage point was in New Zealand.
The gap between the OECD average tax wedge for the single average worker (34.6%) and the one-earner couple with children (24.4%) has widened by 0.7 percentage points since 2019, reflecting policy changes that provided additional support to families with children during the COVID-19 crisis.
The falls in country tax wedges for the single worker, the one-earner couple with two children, and the single parent resulted predominantly from changes in tax policy settings, although falling average wages also contributed in some countries. By contrast, increases in the tax wedge were almost all driven by rising average wages, offset only slightly by policy changes.
Of the ten countries where specific COVID-19 measures affected the indicators, support was primarily delivered through enhanced or one-off cash benefits, with a focus on supporting families with children.
The report shows that labour taxation continues to vary considerably across the OECD, with the tax wedge on the average single worker ranging from zero in Colombia to 51.5% in Belgium.
Further information and individual country notes: https://www.oecd.org/tax/taxing-wages-20725124.htm.
Contacts:

David Bradbury, Head of the OECD’s Tax Policy and Statistics division | David.Bradbury[at]oecd.org

Lawrence Speer | Lawrence.Speer[at]oecd.org in the OECD Media Office | news.contact[at]oecd.org

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Universal, accessible, timely and free-of-charge testing needed across the EU
EU COVID-19 certificates are not travel documents
Member states should not impose quarantines/tests on certificate holders

On Thursday, Parliament adopted its negotiating position on the proposal for a certificate to reaffirm the right to free movement in Europe during the pandemic.
MEPs agreed that the new “EU COVID-19 certificate” – instead of Digital Green Certificate, as proposed by the Commission – should be in place for 12 months and not longer.
The document, which may be in digital or paper format, will attest that a person has been vaccinated against coronavirus or, alternatively, that they have a recent negative test result or have recovered from the infection. However, EU COVID-19 certificates will neither serve as travel document nor become a precondition to exercise the right to free movement, say MEPs.
The legislative proposal covering EU nationals was approved with 540 votes to 119 and 31 abstentions, while the one on third-country nationals passed with 540 votes to 80 and 70 abstentions. The vote took place on Wednesday, with results announced on Thursday morning. Both Parliament and Council are now ready to begin negotiations. The aim is to reach an agreement ahead of the summer tourist season.
No additional travel restrictions and free COVID-19 tests
Holders of an EU COVID-19 certificate should not be subject to additional travel restrictions, such as quarantine, self-isolation or testing, according to the Parliament. MEPs also stress that, in order to avoid discrimination against those not vaccinated and for economic reasons, EU countries should “ensure universal, accessible, timely and free of charge testing”.
Compatible with national initiatives
Parliament wants to ensure that the EU certificate works alongside any initiative set up by the member states, which should also respect the same common legal framework.
Member states must accept vaccination certificates issued in other member states for persons inoculated with a vaccine authorised for use in the EU by the European Medicines Agency (EMA) (currently Pfizer-BioNTech, Moderna, AstraZeneca and Janssen), MEPs say. It will be up to the member states to decide whether they also accept vaccination certificates issued in other member states for vaccines listed by the World Health Organisation (WHO) for emergency use.
Data protection safeguards
The certificates will be verified to prevent fraud and forgery, as will the authenticity of the electronic seals included in the document. Personal data obtained from the certificates cannot be stored in destination member states and there will be no central database established at EU level. The list of entities that will process and receive data will be public so that citizens can exercise their data protection rights under the General Data Protection Regulation.
Affordable vaccines allocated globally
Finally, MEPs underline that COVID-19 vaccines need to be produced at scale, priced affordably and allocated globally. They also voice concern about the serious problems caused by companies not complying with production and delivery schedules.
Quote
Following the vote in plenary, Juan Fernando López Aguilar (S&D, ES), Chair of the Civil Liberties Committee and rapporteur, said: “We need to put in place the EU COVID-19 Certificate to re-establish people’s confidence in Schengen while we continue to fight against the pandemic. Member states must coordinate their response in a safe manner and ensure the free movement of citizens within the EU. Vaccines and tests must be accessible and free for all citizens. Member states should not introduce further restrictions once the certificate is in force.”
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Euro area net saving decreased to €508 billion in four quarters to fourth quarter of 2020, from €549 billion one quarter earlier
Household debt-to-income ratio increased to 96.3% in fourth quarter of 2020 from 93.8% one year earlier
Non-financial corporations’ debt-to-GDP ratio (consolidated measure) at 84.0% in fourth quarter of 2020, up from 76.8% one year earlier

Total euro area economy
Euro area net saving decreased to €508 billion (5.6% of euro area net disposable income) in 2020 compared with €549 billion in the four quarters to the previous quarter. Euro area net non-financial investment decreased to €274 billion (3.0% of net disposable income), due to decreased investment by non-financial corporations, and to a lesser extent households, while net investment by financial corporations and government slightly increased.
Euro area net lending to the rest of the world increased to €243 billion (from €225 billion previously) reflecting net non-financial investment declining more than net saving. Net lending of non-financial corporations increased from €62 billion to €134 billion (1.5% of net disposable income), that of financial corporations rose from €84 billion to €109 billion (1.2% of net disposable income) and net lending by households increased from €684 billion to €821 billion (9.1% of net disposable income). The increase in net lending by the total private sector was largely offset by an increase in net borrowing by the government sector (-9.1% of net disposable income, after -6.6% previously).

Chart 1. Euro area saving, investment and net lending to the rest of the world

(EUR billions, four-quarter sums)
* Net saving minus net capital transfers to the rest of the world (equals change in net worth due to transactions).

Households
The annual growth rate of household financial investment increased to 4.1% in the fourth quarter of 2020, from 3.6% in the previous quarter. Investment in currency and deposits as well as in life insurance and pension schemes were the main contributors to this acceleration, while investment in shares and other equity grew at a broadly unchanged rate.
Households were net buyers of listed shares issued by all resident sectors and the rest of the world. Net purchases of listed shares issued by non-financial corporations grew at a broadly unchanged rate (5.6%), while net purchases of listed shares issued by the rest of the world accelerated (18.3% from 13.6% previously). Households continued to sell debt securities (in net terms) issued by all resident sectors and the rest of the world (see Table 1 below and Table 2.2. in the Annex).

Table 1. Financial investment and financing of households, main items

(annual growth rates)

Financial transactions

2019 Q4
2020 Q1
2020 Q2
2020 Q3
2020 Q4

Financial investment*
2.6
2.5
3.2
3.6
4.1

Currency and deposits
5.1
5.2
6.4
6.9
7.9

Debt securities
-10.8
-13.1
-10.8
-6.1
-7.6

Shares and other equity
0.3
1.0
1.9
2.3
2.2

Life insurance and pension schemes
2.7
2.0
1.7
1.4
1.8

Financing**
4.1
3.5
3.2
3.2
2.9

Loans
3.6
3.3
3.0
3.1
3.1

* Items not shown include: loans granted, prepayments of insurance premiums and reserves for outstanding claims and other accounts receivable.
** Items not shown include: financial derivatives’ net liabilities, pension schemes and other accounts payable.

Chart 2 below shows the stock of selected financial assets held by households (in dark blue) vis-à-vis counterpart sectors.[1] At the end of 2020, households’ financial assets with a counterpart sector breakdown were mostly liabilities of financial intermediaries such as MFIs (38% of households’ financial assets), insurance corporations (27%), pension funds (13%) and investment funds (12%). Direct holdings of financial assets issued by non-financial corporations (6%), government (1%) and the rest of the world (2%), e.g. in the form of listed shares and debt securities, represented much lower proportions of households’ financial assets.

Chart 2. Households’ financial assets by counterpart sector; selected financial instruments*

(2020 end of period stocks)
* Financial instruments for which the counterpart sector breakdown is available: deposits, loans, debt securities, listed shares and investment fund shares/units, as well as insurance, pension and standardised guarantee schemes (F.6). The counterpart sector breakdown for F.6 is estimated (See methodological note: Extension of the who-to-whom presentation to insurance and pension assets).

The household debt-to-income ratio[2] increased to 96.3% in the fourth quarter of 2020 from 93.8% in the fourth quarter of 2019, as disposable income grew slower than the outstanding amount of loans to households. The household debt-to-GDP ratio rose to 62.7% in the fourth quarter of 2020 from 57.8% in the fourth quarter of 2019 (see Chart 3), as debt increased and GDP declined.

Chart 3. Debt ratios of households and non-financial corporations

(debt as a percentage of GDP)
* Outstanding amount of loans, debt securities, trade credits and pension scheme liabilities.
** Outstanding amount of loans and debt securities, excluding debt positions between non-financial corporations.
***Outstanding amount of loan liabilities.

Non-financial corporations
In the fourth quarter of 2020, the annual growth of financing of non-financial corporations stood at an unchanged rate of 1.9% compared with the previous quarter. Financing by loans from financial corporations other than MFIs accelerated, while financing by intercompany loans, debt securities, shares and other equity decelerated. Loans from MFIs remained broadly unchanged. Trade credits declined, though at a lower rate (see Table 2 below and Table 3.2 in the Annex).
Non-financial corporations’ debt-to-GDP ratio (consolidated measure) increased to 84.0% in the fourth quarter of 2020, from 76.8% in the fourth quarter of 2019; the non-consolidated, wider debt measure increased to 147.6% from 136.8% (see Chart 3). The increases in these ratios were due to an increase in the debt of NFCs and a decline in GDP over this period.

Table 2. Financial investment and financing of non-financial corporations, main items

(annual growth rates)

Financial transactions

2019 Q4
2020 Q1
2020 Q2
2020 Q3
2020 Q4

Financing*
1.9
2.1
1.8
1.9
1.9

Debt securities
6.1
4.3
10.4
9.8
9.5

Loans
2.0
3.4
3.3
3.0
3.4

Shares and other equity
1.4
1.2
1.1
1.3
1.0

Trade credits and advances
2.0
1.0
-4.9
-2.8
-0.5

Financial investment**
2.3
2.3
2.5
2.9
3.1

Currency and deposits
5.8
9.7
18.3
20.1
18.7

Debt securities
-8.9
-2.3
9.2
6.8
7.9

Loans
1.6
0.5
-0.3
0.0
0.2

Shares and other equity
2.1
2.1
2.1
2.1
1.7

* Items not shown include: pension schemes, other accounts payable, financial derivatives’ net liabilities and deposits.
** Items not shown include: other accounts receivable and prepayments of insurance premiums and reserves for outstanding claims.

Chart 4 below shows the non-financial corporations’ debt (in dark blue) vis-à-vis counterpart sectors. At the end of 2020, the non-financial corporations’ debt in the form of loans and debt securities was held primarily by MFIs (36%), other non-financial corporations (27%), the rest of the world (15%) and other financial institutions (12%).

Chart 4. The main components of NFC debt (loans and debt securities) by counterpart sector

(2020 end of period stocks)

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Notes

These data come from a second release of quarterly euro area sector accounts from the European Central Bank (ECB) and Eurostat, the statistical office of the European Union. This release incorporates revisions and completed data for all sectors compared with the first quarterly release on “Euro area households and non-financial corporations” of 9 April 2021.
The debt-to-GDP (or debt-to-income) ratios are calculated as the outstanding amount of debt in the reference quarter divided by the sum of GDP (or income) in the four quarters to the reference quarter. The ratio of non-financial transactions (e.g. savings) as a percentage of income or GDP is calculated as sum of the four quarters to the reference quarter for both numerator and denominator.
The annual growth rate of non-financial transactions and of outstanding assets and liabilities (stocks) is calculated as the percentage change between the value for a given quarter and that value recorded four quarters earlier. The annual growth rates used for financial transactions refer to the total value of transactions during the year in relation to the outstanding stock a year before.
The next release of the Household Sector Report containing results for the euro area and all EU countries is scheduled for 11 May 2021.
Hyperlinks in the main body of the statistical release lead to data that may change with subsequent releases as a result of revisions. Figures shown in annex tables are a snapshot of the data as at the time of the current release.
The production of quarterly financial accounts (QFA) may have been affected by the COVID-19 crisis. More information on the potential impact on QFA can be found here.

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