The European Union – together with the international G7+ Price Cap Coalition – have today adopted further price caps for seaborne Russian petroleum products (such as diesel and fuel oil). This decision will hit Russia’s revenues even harder and reduce its ability to wage war in Ukraine. It will also help stabilise global energy markets, benefitting countries across the world.
It comes on top of the price cap for crude oil in force since December 2022, and will complement the EU’s full ban on importing seaborne crude oil and petroleum products into the European Union.
Ursula von der Leyen, President of the European Commission, said: “We are making Putin pay for his atrocious war. Russia is paying a heavy price, as our sanctions are eroding its economy, throwing it back by a generation. Today, we are turning up the pressure further by introducing additional price caps on Russian petroleum products. This has been agreed with our G7 partners and will further erode Putin’s resources to wage war. By 24 February, exactly one year since the invasion started, we aim to have the tenth package of sanctions in place.”
Two price levels have been set for Russian petroleum products: one for ”premium-to-crude” petroleum products, such as diesel, kerosene and gasoline, and the other for ”discount-to-crude” petroleum products, such as fuel oil and naphtha, reflecting market dynamics. The maximum price for premium-to-crude products will be 100 USD per barrel and the maximum price for discount-to-crude will be 45 USD per barrel.
The price cap on petroleum products will be implemented from 5 February 2023. It includes a 55-day wind-down period for seaborne Russian petroleum products purchased above the price cap, provided it is loaded onto a vessel at the port of loading prior to 5 February 2023 and unloaded at the final port of destination prior to 1 April 2023.
The price caps for petroleum products and crude oil will be continually monitored to ensure their effectiveness and impact. The price caps themselves will be reviewed and adjusted as appropriate.
The European Commission has also published today a guidance document on the implementation of the price caps.
Background
The Price Cap Coalition is composed of Australia, Canada, the EU, Japan, the UK, and the US.
The EU’s sanctions against Russia are proving effective. They are damaging Russia’s ability to manufacture new weapons and repair existing ones, as well as hinder its transport of material while reducing its revenues from fossil fuels exports. In response to Belarus’ involvement in Russia’s military invasion of Ukraine, the EU has also adopted a variety of sanctions against Belarus in 2022.
The geopolitical, economic, and financial implications of Russia’s continued aggression are clear, as the war has disrupted global commodities markets, especially for agrifood products and energy. The EU continues to ensure that its sanctions do not impact energy and agrifood exports from Russia to third countries.
As guardian of the EU Treaties, the European Commission monitors the enforcement of EU sanctions across the EU.
The EU stands united in its solidarity with Ukraine, and will continue to support Ukraine and its people together with its international partners, including through additional political, financial, and humanitarian support.
Compliments of the European Commission.
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The ECB has asked people in the euro area how they pay and which payment methods they prefer. The ECB Blog discusses our survey findings and what they mean for the future of cash and digital means of payment.

Digitalisation has changed, and will continue to change, the way people make payments. Today’s payment options are in some ways unrecognisable from what was available a decade ago. Using a device or app, you might pay for your groceries with your watch today, and use an app tonight to share costs and settle up with your dinner date before your plates are even cleared.
But to be clear: cash remains the most frequently used means of payment. More than half of all day-to-day transactions in shops, restaurants, etc. are made using coins and banknotes. Many languages in Europe have expressions such as “cash is king” or “nur Bares ist Wahres” and our survey shows that 60% of citizens want to have the option of using cash.
Cash remains the most frequently used means of payment
More and more people are paying online for their day-to-day purchases. But with the increase of digital payment options, how do we know that a majority of consumers still want physical cash in their pockets? Well, we ask them. The study on the payment attitudes of consumers in the euro area[1] (SPACE) is conducted on a regular basis and sheds light on payment trends. It’s an important activity given the ECB’s responsibility to issue public money and promote the smooth functioning of payment systems. The study demonstrates that cash is still the most frequently used means of payment at point of sale, although its use in the euro area has declined. In 2016 and 2019, 79% and 72% of the total number of transactions at points of sale, such as shops and restaurants, were made in cash.[2] In 2022, this figure had fallen to 59%. While the reason for this change cannot be determined unequivocally, it seems that consumption and payment behaviours learned during the pandemic outlasted the restrictions that caused them.

Chart 1
Number of payments at point of sale

Although most payments were still made in cash, 55% of euro area consumers prefer paying with card or other cashless means of payment. This is mostly due to the convenience of cashless payments: people do not need to carry hard cash. Still, cash is the preferred means of payment for 22% of those surveyed, largely because it helps to track people’s expenses and is more private.
Despite the preference for cashless payments, 60% of euro area consumers state that they value having the option to pay in cash. This shows that people appreciate having a choice when it comes to how they pay. Their decision may then depend on the particular situation or purchase.
What does all this mean for us at the European Central Bank?
A healthy payment system guarantees access to different payment options as well as the freedom to choose.

We will continue to support the availability of different payment instruments

As cash remains widely used and valued, we are committed to maintaining euro cash and will continue to make sure it is available. This means we will guarantee the supply of euro banknotes, coordinate their production, and ensure their security and resistance to counterfeiting. We are working on new themes and designs for future banknotes. The aim is to have banknotes with a look that is even more relatable to European citizens.
Moreover, we will continue to support the availability of different payment instruments. Compared to a decade or more ago, today’s payment options are far more diverse. To keep and further develop this diversity, we are working on the potential issuance of a digital euro. This will add another option for citizens to pay with central bank money, besides cash. We also continue to support point of sale and e-commerce solutions based on instant payments with a pan-European reach and European governance. Today and tomorrow, European citizens will pay with different methods but with the same stable, reliable money: the euro.
Authors:

Ulrich Bindseil, Director General
Doris Schneeberger

Compliments of the European Central Bank.
Footnotes:
1. ECB (2022), “Study on the payment attitudes of consumers in the euro area (SPACE) – 2022”, December.
2. Esselink, H., and Hernandez, L. (2017) “The use of cash by households in the euro area”, Occasional Paper Series, No 201, ECB, November.
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The fight against inflation is starting to pay off, but central banks must continue their efforts

The global economy is poised to slow this year, before rebounding next year. Growth will remain weak by historical standards, as the fight against inflation and Russia’s war in Ukraine weigh on activity.
Despite these headwinds, the outlook is less gloomy than in our October forecast, and could represent a turning point, with growth bottoming out and inflation declining.
Economic growth proved surprisingly resilient in the third quarter of last year, with strong labor markets, robust household consumption and business investment, and better-than-expected adaptation to the energy crisis in Europe. Inflation, too, showed improvement, with overall measures now decreasing in most countries—even if core inflation, which excludes more volatile energy and food prices, has yet to peak in many countries.
Elsewhere, China’s sudden re-opening paves the way for a rapid rebound in activity. And global financial conditions have improved as inflation pressures started to abate. This, and a weakening of the US dollar from its November high, provided some modest relief to emerging and developing countries.
Accordingly, we have slightly increased our 2022 and 2023 growth forecasts. Global growth will slow from 3.4 percent in 2022 to 2.9 percent in 2023 then rebound to 3.1 percent in 2024.

 
For advanced economies, the slowdown will be more pronounced, with a decline from 2.7 percent last year to 1.2 percent and 1.4 percent this year and next. Nine out of 10 advanced economies will likely decelerate.
US growth will slow to 1.4 percent in 2023 as Federal Reserve interest-rate hikes work their way through the economy. Euro area conditions are more challenging despite signs of resilience to the energy crisis, a mild winter, and generous fiscal support. With the European Central Bank tightening monetary policy, and a negative terms-of-trade shock—due to the increase in the price of its imported energy—we expect growth to bottom out at 0.7 percent this year.
Emerging market and developing economies have already bottomed out as a group, with growth expected to rise modestly to 4 percent and 4.2 percent this year and next.
The restrictions and COVID-19 outbreaks in China dampened activity last year. With the economy now re-opened, we see growth rebounding to 5.2 percent this year as activity and mobility recover.
India remains a bright spot. Together with China, it will account for half of global growth this year, versus just a tenth for the US and euro area combined. Global inflation is expected to decline this year but even by 2024, projected average annual headline and core inflation will still be above pre-pandemic levels in more than 80 percent of countries.

The risks to the outlook remain tilted to the downside, even if adverse risks have moderated since October and some positive factors gained in relevance.
On the downside:

China’s recovery could stall amid greater-than-expected economic disruptions from current or future waves of COVID-19 infections or a sharper-than-expected slowdown in the property sector
Inflation could remain stubbornly high amid continued labor-market tightness and growing wage pressures, requiring tighter monetary policies and a resulting sharper slowdown in activity
An escalation of the war in Ukraine remains a major threat to global stability that could destabilize energy or food markets and further fragment the global economy

A sudden repricing in financial markets, for instance in response to adverse inflation surprises, could tighten financial conditions, especially in emerging market and developing economies

On the upside:

Strong household balance sheets, together with tight labor markets and solid wage growth could help sustain private demand, although potentially complicating the fight against inflation
Easing supply-chain bottlenecks and labor markets cooling due to falling vacancies could allow for a softer landing, requiring less monetary tightening

Policy priorities
The inflation news is encouraging, but the battle is far from won. Monetary policy has started to bite, with a slowdown in new home construction in many countries. Yet, inflation-adjusted interest rates remain low or even negative in the euro area and other economies, and there is significant uncertainty about both the speed and effectiveness of monetary tightening in many countries.

 
Where inflation pressures remain too elevated, central banks need to raise real policy rates above the neutral rate and keep them there until underlying inflation is on a decisive declining path. Easing too early risks undoing all the gains achieved so far.
The financial environment remains fragile, especially as central banks embark on an uncharted path toward shrinking their balance sheets. It will be important to monitor the build-up of risks and address vulnerabilities, especially in the housing sector or in the less-regulated non-bank financial sector. Emerging market economies should let their currencies adjust as much as possible in response to the tighter global monetary conditions. Where appropriate, foreign exchange interventions or capital flow measures can help smooth volatility that’s excessive or not related to economic fundamentals.
Many countries responded to the cost-of-living crisis by supporting people and businesses with broad and untargeted policies that helped cushion the shock. Many of these measures have proved costly and increasingly unsustainable. Countries should instead adopt targeted measures that conserve fiscal space, allow high energy prices to reduce demand for energy, and avoid overly stimulating the economy.
Supply-side policies also have a role to play. They can help remove key growth constraints, improve resilience, ease price pressures, and foster the green transition. These would help alleviate the accumulated output losses since the beginning of the pandemic, especially in emerging and low-income economies.

Finally, the forces of geoeconomic fragmentation are growing. We must buttress multilateral cooperation, especially on fundamental areas of common interest such as international trade, expanding the global financial safety net, public health preparedness and the climate transition.
This time around, the global economic outlook hasn’t worsened. That’s good news, but not enough. The road back to a full recovery, with sustainable growth, stable prices, and progress for all, is only starting.

Compliments of the IMF.
The post IMF | Global Economy to Slow Further Amid Signs of Resilience and China Re-opening first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

Today, the Commission presents a Green Deal Industrial Plan to enhance the competitiveness of Europe’s net-zero industry and support the fast transition to climate neutrality. The Plan aims to provide a more supportive environment for the scaling up of the EU’s manufacturing capacity for the net-zero technologies and products required to meet Europe’s ambitious climate targets.
The Plan builds on previous initiatives and relies on the strengths of the EU Single Market, complementing ongoing efforts under the European Green Deal and REPowerEU. It is based on four pillars: a predictable and simplified regulatory environment, speeding up access to finance, enhancing skills, and open trade for resilient supply chains.
Ursula von der Leyen, President of the European Commission, said: “We have a once in a generation opportunity to show the way with speed, ambition and a sense of purpose to secure the EU’s industrial lead in the fast-growing net-zero technology sector. Europe is determined to lead the clean tech revolution. For our companies and people, it means turning skills into quality jobs and innovation into mass production, thanks to a simpler and faster framework. Better access to finance will allow our key clean tech industries to scale up quickly.”
A predictable and simplified regulatory environment
The first pillar of the plan is about a simpler regulatory framework.
The Commission will propose a Net-Zero Industry Act to identify goals for net-zero industrial capacity and provide a regulatory framework suited for its quick deployment, ensuring simplified and fast-track permitting, promoting European strategic projects, and developing standards to support the scale-up of technologies across the Single Market.
The framework will be complemented by the Critical Raw Materials Act, to ensure sufficient access to those materials, like rare earths, that are vital for manufacturing key technologies, and the reform of the electricity market design, to make consumers benefit from the lower costs of renewables.
Faster access to funding
The second pillar of the plan will speed up investment and financing for clean tech production in Europe. Public financing, in conjunction with further progress on the European Capital Markets Union, can unlock the huge amounts of private financing required for the green transition. Under competition policy, the Commission aims to guarantee a level playing field within the Single Market while making it easier for the Member States to grant necessary aid to fast-track the green transition. To that end, in order to speed up and simplify aid granting, the Commission will consult Member States on an amended Temporary State aid Crisis and Transition Framework and it will revise the General Block Exemption Regulation in light of the Green Deal, increasing notification thresholds for support for green investments. Among others, this will contribute to further streamline and simplify the approval of IPCEI-related projects.
The Commission will also facilitate the use of existing EU funds for financing clean tech innovation, manufacturing and deployment. The Commission is also exploring avenues to achieve greater common financing at EU level to support investments in manufacturing of net-zero technologies, based on an ongoing investment needs assessment. The Commission will work with Member States in the short term, with a focus on REPowerEU, InvestEU and the Innovation Fund, on a bridging solution to provide fast and targeted support. For the mid-term, the Commission intends to give a structural answer to the investment needs, by proposing a European Sovereignty Fund in the context of the review of the Multi-annual financial framework before summer 2023.
To help Member States’ access the REPowerEU funds, the Commission has today adopted new guidance on recovery and resilience plans, explaining the process of modifying existing plans and the modalities for preparing REPowerEU chapters.
Enhancing skills
As between 35% and 40% of all jobs could be affected by the green transition, developing the skills needed for well-paid quality jobs will be a priority for the European Year of Skills, and the third pillar of the plan will focus on it.
To develop the skills for a people centred green transition the Commission will propose to establish Net-Zero Industry Academies to roll out up-skilling and re-skilling programmes in strategic industries. It will also consider how to combine a ‘Skills-first’ approach, recognising actual skills, with existing approaches based on qualifications, and how to facilitate access of third country nationals to EU labour markets in priority sectors, as well as measures to foster and align public and private funding for skills development.
Open trade for resilient supply chains
The fourth pillar will be about global cooperation and making trade work for the green transition, under the principles of fair competition and open trade, building on the engagements with the EU’s partners and the work of the World Trade Organization. To that end, the Commission will continue to develop the EU’s network of Free Trade Agreements and other forms of cooperation with partners to support the green transition. It will also explore the creation of a Critical Raw Materials Club, to bring together raw material ‘consumers’ and resource-rich countries to ensure global security of supply through a competitive and diversified industrial base, and of Clean Tech/Net-Zero Industrial Partnerships.
The Commission will also protect the Single Market from unfair trade in the clean tech sector and will use its instruments to ensure that foreign subsidies do not distort competition in the Single Market, also in the clean-tech sector.
Background
The European Green Deal, presented by the Commission on 11 December 2019, sets the goal of making Europe the first climate-neutral continent by 2050. The European Climate Law enshrines in binding legislation the EU’s commitment to climate neutrality and the intermediate target of reducing net greenhouse gas emissions by at least 55% by 2030, compared to 1990 levels.
In the transition to a net-zero economy, Europe’s competitiveness will strongly rely on its capacity to develop and manufacture the clean technologies that make this transition possible.
The European Green Deal Industrial Plan was announced by President von der Leyen in her speech at to the World Economic Forum in Davos in January 2023 as the initiative for the EU to sharpen its competitive edge through clean-tech investment and continue leading on the path to climate neutrality. It responds to the invitation by the European Council for the Commission to make proposals by the end of January 2023 to mobilise all relevant national and EU tools and improve framework conditions for investment, with a view to ensuring EU’s resilience and competitiveness.
Compliments of the European Commission.
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The press briefing ahead of the EU-Ukraine summit of 3 February 2023 will take place on Wednesday 1 February 2023 at 14.00. This briefing will be “off the record”.
The press briefing will take place in a hybrid format: EU accredited journalists will be able to participate and ask questions either in person at the Justus Lipsius press room or remotely.
To attend the events remotely, please use this link to register and have the possibility to ask questions.
EU accredited journalists who already registered for previous high level press events in 2022 do not need to do it again.

Deadline for registration: Wednesday 1 February 2023 at 13.00. 

Further instructions will be sent to all registered participants shortly after the deadline.
Compliments of the European Council, Council of the European Union.
The post Press briefing ahead of the EU-Ukraine summit of 3 February 2023 first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

WASHINGTON –United States Secretary of Homeland Security Alejandro N. Mayorkas and European Commissioner for Internal Market Thierry Breton, released the following joint statement on the cooperation between the United States and the European Union in the fields of Cyber Resilience:
“Cyberspace knows no borders and it is only by working closely together with our allies and likeminded partners that we will succeed in securing our people, critical infrastructure, and businesses against malicious cyber activities. Today we launch a new chapter in our transatlantic partnership with three workstreams focused on deepening our cooperation on cyber resilience.
“In the context of the EU-US Cyber Dialogue, the US Department of Homeland Security and the European Commission’s Directorate-General for Communications Networks, Content and Technology intend to launch dedicated workstreams in the fields of Information Sharing, Situational Awareness, and Cyber Crisis Response; Cybersecurity of Critical Infrastructure and Incident Reporting Requirements; and Cybersecurity of Hardware and Software. The workstreams are expected to invite and involve as appropriate other relevant institutions and agencies working on cyber issues, including the European External Action Service, the Directorate-General for Defence, Industry, and Space, and the U.S. Department of State. In addition, a cyber fellowship led by DHS and DG CNCT is expected to be launched with a pilot that will involve an exchange of cyber experts in 2023.
“Today, we discussed the initial deliverables, which include:

Deepening structured information exchanges on threats, threat actors, vulnerabilities, and incidents to support a collective response to defend against global threats to include crisis management and support of diplomatic responses.
Finalizing a working arrangement between ENISA and CISA to foster cooperation and sharing of best practices.
Collaborating on the topic of cyber incident reporting requirements for critical infrastructure, including guidelines and templates.
Collaborating on the cybersecurity of software and hardware.
Exploring how we can work together to better protect civilian space systems.

“The launch of these workstreams reflects key elements in the joint statement between President Biden and President von der Leyen from March 2022, which called for deeper cooperation and more structured cybersecurity information exchanges on threats. The first deliverables from these workstreams are expected to be reported on at the 9th EU-US Cyber Dialogue, foreseen in the second half of 2023.”
Compliments of the European Commission.
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Euro area net saving decreased to €678 billion in four quarters up to third quarter of 2022, compared with €731 billion one quarter earlier
Household debt-to-income ratio declined to 94.7% in third quarter of 2022 from 96.0% one year earlier
Non-financial corporations’ debt-to-GDP ratio (consolidated measure) decreased to 77.6% in third quarter of 2022 from 79.4% one year earlier

Total euro area economy
Euro area net saving decreased to €678 billion (6.5% of euro area net disposable income) in the four quarters to the third quarter of 2022, as compared with €731 billion one quarter earlier. Euro area net non-financial investment increased to €667 billion (6.4% of net disposable income), as investment by all four main sectors of the economy, namely households, general government, and non-financial and financial corporations, increased (see Chart 1).
Euro area net lending to the rest of the world decreased to €39 billion (from €214 billion in the previous quarter), as net saving decreased and non-financial investment increased. Net lending by households decreased to €318 billion (3.1% of net disposable income, after 3.6%). Net lending of non-financial corporations declined to €3 billion (0.0% of net disposable income, after 1.4%) while that of financial corporations was broadly unchanged at €68 billion (0.7% of net disposable income). The decrease in net lending by the total private sector was partially offset by a decline in net borrowing by the general government sector (-3.4% of net disposable income, after -3.6%).

Chart 1
Euro area saving, investment and net lending to the rest of the world
(EUR billions, four-quarter sums)

Sources: ECB and Eurostat.
* Net saving minus net capital transfers to the rest of the world (equals change in net worth due to transactions).

Data for euro area saving, investment and net lending to the rest of the world (Chart 1)
Households
Household financial investment increased at a broadly unchanged annual rate of 2.6% in the third quarter of 2022. This was due to higher growth rates of investment in currency and deposits (4.0%, after 3.7%) and debt securities (7.4%, after 0.0%), which were offset by a deceleration of investment in shares and other equity (1.4%, after 2.3%) and in life insurance (1.2%, after 1.6%) (see Table 1 below).
Households were overall net buyers of listed shares. By issuing sector, they were net buyers primarily of listed shares issued by non-financial corporations and the rest of the world (i.e. shares issued by non-euro area residents), and to a lesser extent of listed shares of MFIs, other financial institutions and insurance corporations. Households made net purchases of debt securities issued by general government and to a lesser extent non-financial corporations and MFIs, while selling debt securities issued by other financial institutions and the rest of the world (see Table 2.2. in the Annex).
The household debt-to-income ratio[1] decreased to 94.7% in the third quarter of 2022 from 96.0% in the third quarter of 2021. The household debt-to-GDP ratio declined to 58.2% in the third quarter of 2022 from 60.5% in the third quarter of 2021 (see Chart 2).

Table 1
Financial investment and financing of households, main items
(annual growth rates)

Financial transactions

2021 Q3
2021 Q4
2022 Q1
2022 Q2
2022 Q3

Financial investment*
4.0
3.5
3.0
2.7
2.6

Currency and deposits
6.2
4.9
4.2
3.7
4.0

Debt securities
-9.3
-7.9
-6.5
0.0
7.4

Shares and other equity
3.5
3.8
2.7
2.3
1.4

Life insurance
2.4
2.2
1.9
1.6
1.2

Pension schemes
2.1
2.0
2.1
2.1
2.1

Financing**
3.6
3.9
4.4
5.3
5.0

Loans
4.0
4.1
4.2
4.3
4.2

Source: ECB.
* 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.

Data for financial investment and financing of households (Table 1)

Chart 2
Debt ratios of households and non-financial corporations
(percentages of GDP)

Source: ECB and Eurostat.
* 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.

Data for debt ratios of households and non-financial corporations (Chart 2)
Non-financial corporations
In the third quarter of 2022, the annual growth of financing of non-financial corporations increased to 3.5% from 3.2% in the previous quarter, reflecting an acceleration in financing by loans as well as shares and other equity, while the financing by trade credits and debt securities decelerated (see Table 2 below).
The acceleration of loan financing was due to higher growth rates in loans from MFIs, from within the non-financial corporations sector, from general government and from the rest of the world, while loans from other financial institutions decelerated (see Table 3.2 in the Annex).
Non-financial corporations’ debt-to-GDP ratio (consolidated measure) decreased to 77.6% in the third quarter of 2022 from 79.4% in the third quarter of 2021; the non-consolidated, wider debt measure, decreased to 140.7% from 142.5% (see Chart 2).

Table 2
Financing and financial investment of non-financial corporations, main items
(annual growth rates)

Financial transactions

2021 Q3
2021 Q4
2022 Q1
2022 Q2
2022 Q3

Financing*
2.3
3.0
3.0
3.2
3.5

Debt securities
2.0
5.6
5.8
4.9
3.2

Loans
3.6
4.4
4.6
5.4
6.3

Shares and other equity
1.1
1.1
1.1
1.1
1.4

Trade credits and advances
6.7
11.1
10.9
11.4
9.4

Financial investment**
4.2
4.9
4.7
4.7
4.7

Currency and deposits
7.0
9.6
8.6
7.9
7.4

Debt securities
-0.2
-5.2
-1.4
4.3
10.3

Loans
6.9
7.2
7.2
6.5
6.2

Shares and other equity
1.2
1.6
2.0
2.4
2.8

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

Data for financing and financial investment of non-financial corporations (Table 2)
For queries, please use the Statistical information request form.
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 11 January 2023.
The euro area and national financial accounts data of non-financial corporations and households are available in an interactive dashboard.
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.
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.

Compliments of the European Central Bank.
Footnote:
1. Calculated as loans divided by gross disposable income adjusted for the change in pension entitlements.
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The 2021 surge in global shipping costs was a canary in the coal mine for the persistent rise in inflation

It bears remembering that, as recently as the second half of 2021, the Federal Reserve considered that the surge in consumer price inflation would dissipate, with price increases returning to the Fed’s 2 percent target in 2022. In testimony before Congress, Fed Chair Jerome Powell affixed the now infamous “transitory” moniker to the ongoing price increases, which he ascribed to temporary supply bottlenecks and price declines in the early stages of the pandemic.
The Fed rejected the notion that price increases reflected an overheated economy—a view that was nevertheless already making the rounds in certain segments of Congress—and did not foresee any tightening before 2023 or 2024. New York Federal Reserve Bank President John Williams, who also serves as vice chair of the Fed’s policymaking committee, expected inflation to run at about 2 percent in both 2022 and 2023.
The Fed was not alone in misreading the implications of the data already available in 2021. The IMF, whose mandate is to take an independent view of developments and policies in member countries, described the inflationary surge in a blog by its (then) chief economist, Gita Gopinath, in the same terms as the Fed, pointing to transitory causes and taking comfort in the anchoring of inflation expectations. Like the Fed, the IMF did not mention in its updates the possibility of economic overheating and inflation persistence.
Fast-forward to spring 2022: the IMF’s World Economic Outlook revealed that the institution’s inflation projections were off by a factor of more than 3 for advanced economies and 2 for all other countries. These facts show that the inflation surprise was global.
To be fair, there were factors that were not foreseeable in 2021, such as supply chain disruptions related to China’s zero-COVID policy and commodity price increases owing to Russia’s invasion of Ukraine. There were also factors whose impact was difficult to predict with precision—for example, the unwinding of pandemic-era savings, which boosted demand. Economic forecasters, whether at the Fed or at the IMF, are not geopolitical or public health experts, and often the best they can do is to make an educated guess.
But while policymakers may get a pass for not factoring into their decisions what was unknowable a year ago, they should be held accountable for missing known drivers of inflation, especially those that pointed to enduring price pressures. It’s likely that the Fed has had to hike interest rates further to make up for its delayed start. Recession risks are very plausibly larger as a result, as are the adverse global spillovers from Fed policy.
So was there a smoking gun? In a recent study, my coauthors and I focus on a key driver of global inflation that was very evident already in 2021: the rapid increase in global shipping costs. By October 2021, indicators of the cost of shipping containers by maritime freight had increased by over 600 percent from their pre-pandemic levels, while the cost of shipping bulk commodities by sea had more than tripled.
What caused this remarkable increase? As manufacturing activity picked up following extended COVID-19 lockdowns, demand for shipping intermediate inputs (such as energy and raw materials) by sea increased significantly. At the same time, shipping capacity was severely constrained by logistical hurdles and bottlenecks related to pandemic disruptions and shortages of container equipment. Ports around the world lacked workers, who had to self-isolate after testing positive for COVID-19, and public health restrictions prevented truck drivers and ship crews from crossing borders.
While skyrocketing food and energy prices were making headlines, the surge in shipping costs seemed to pass largely under the radar, despite its potential inflationary impact. Our analysis suggests that a doubling of shipping costs causes inflation to increase by roughly 0.7 percentage point. Given the actual increase in global shipping costs during 2021, we estimate that the impact on inflation in 2022 was more than 2 percentage points—a huge effect that few central banks would dismiss.
Our study also shows that the effect of the shipping cost shock on inflation is longer-lasting than the effects of commodity price shocks, peaking after about a year and lasting up to 18 months. By contrast, the impact of global oil prices on consumer price inflation peaks after only two months.
Of course, this average result varies across economies and regions, and it depends on monetary policy frameworks, particularly central banks’ track record of stabilizing prices and anchoring expectations, as well as on more structural features such as geography (which affects an economy’s remoteness and dependence on goods shipped by sea).
Our evidence suggests that the impacts of surging shipping costs are likely to be larger and more persistent in countries with less-anchored inflation expectations and weaker monetary policy frameworks. Lower-income countries and some emerging market economies may be more at risk than advanced economies with established price stability credentials.

Remote small-island states in the Pacific and the Caribbean are the most affected, according to our study’s results, with an inflationary transmission that is about double the average in the sample as a whole. This amplifies risks of wage-price spirals in such countries (a loop in which inflation leads to higher wage growth, fueling even higher inflation). When shipping costs surge, policymakers everywhere, but especially in such countries, may need to tighten their monetary policy preemptively.
The pandemic spike in shipping costs is more than a year behind us, and our research suggests that we should already have seen most of its inflationary impact by now. Our estimates, moreover, are symmetric, such that declines in shipping costs would tend to bring inflation down in the following year. The implication is for the big moderation in shipping costs in 2022 to contribute to a reversal of inflationary pressures.
Shipping costs’ role as a driver of global inflation is underrecognized. This needs to change. Shipping cost shocks can alert central banks tasked with ensuring price stability of dangers ahead and help them reduce the risk of once again falling behind the curve.
Author:

Jonathan D. Osstry, is professor of the practice of economics at Georgetown University and the former acting director of the IMF’s Asia and Pacific department

Compliments of the IMF.
The post IMF | The Costs of Misreading Inflation first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.

Governor Christopher J. Waller at the C. Peter McColough Series on International Economics, Council on Foreign Relations, New York, New York |

Thank you, Ben, and thank you to the Council on Foreign Relations (CFR) for inviting me to be part of this discussion. It has been close to a year since the Federal Open Market Committee (FOMC) began tightening monetary policy. We began raising interest rates in March 2022 and shrinking our securities holdings in June in order to bring inflation down to our 2 percent target.1 Today I thought I would spend a few minutes taking stock of the year behind us and talking about what’s next.
A year ago, inflation was elevated and rapidly accelerating, and the Fed moved to quickly and dramatically tighten monetary policy. At the end of December, the federal funds rate target was set in a range of 4.25 percent to 4.5 percent, the highest in 15 years. Economic activity, meanwhile, has been holding up well. After shrinking slightly in the first half of 2022, real gross domestic product grew at an annual rate of 3.2 percent in the third quarter, and monthly data suggest it grew around 2 percent in the fourth quarter. I expect such slowing to continue in this quarter, which is both expected and desirable in our ongoing fight to lower inflation.
The FOMC’s goal in raising interest rates is to dampen demand and economic activity to support further reductions in inflation. And there is ample evidence that this is exactly what is going on in the business sector. On the manufacturing side, industrial production declined for the second month in December. And the Institute for Supply Management’s (ISM) forward-looking indicators of orders and customers’ inventory suggested that further weakening is in train. Meanwhile, the ISM survey for nonmanufacturing businesses, which had reported expansion since April of last year, indicated a slight contraction in December. This slowdown in services activity was widespread, affecting 11 of 17 sectors in the survey, with significant slowdowns in construction and real estate, two industries heavily affected by higher interest rates. This slowing in business activity is consistent with the FOMC’s goal of damping demand and reducing production so that it is in better alignment with the productive capacity of the economy. The goal is not, I would emphasize, to halt economic activity, and so we will be watching these sectors closely to see how this moderation continues.
Growth in consumer spending has also begun to slow. While that growth was surprisingly strong through most of the second half of 2022, nominal personal consumption expenditures growth slowed to 0.1 percent in November, and retail sales fell 1 percent. We don’t have spending data on goods and services for December, but retail sales fell another 1.1 percent. While the latest readings of consumer sentiment from the University of Michigan moved up some from historic lows, I continue to expect that last year’s decline in real incomes, along with higher borrowing costs, will moderate consumer spending this year and help return inflation more promptly to the FOMC’s 2 percent target. Job one is maintaining the progress we are making in lowering inflation, and moderation in consumer spending will support that progress.
The slowing in output growth has occurred alongside the continuing strength of the labor market. Total nonfarm employment grew 223,000 in December, close to the average of 237,000 a month for the fourth quarter. That is down quite a bit from the monthly increase of 539,000 in the first quarter of 2022 but still a solid growth rate, far above the number of new jobs needed to keep pace with population growth. Employment grew robustly in the leisure and health-care sectors, where labor shortages are reportedly severe.
While the labor market is strong, it is also tight. The unemployment rate was 3.5 percent in December, matching the low reached before the pandemic, and the lowest in 53 years. But there are signs that demand for labor is moderating. Job openings reported in the November Job Openings and Labor Turnover Survey and job postings from December’s Indeed data are down from their recent peaks. Temporary-help employment, which has sometimes been a leading indicator for overall employment, has declined in recent months, but that decrease may be due at least in part to employers opting to hire full-time workers in place of temps to help keep jobs filled.
A robust labor market, despite modest economic growth, is a plus for workers and allows the Fed to focus on lowering inflation. It shows that jobs and income can hold up to the effects of higher interest rates, helping the FOMC continue its efforts to lower inflation to our 2 percent goal by further tightening monetary policy.
A potential downside of a tight labor market is if labor costs, which heavily influence inflation, grow so fast that they slow progress toward the FOMC’s 2 percent objective. Wages and other measures of compensation accelerated as inflation surged in the second half of 2021 and wage growth remained high in 2022. But as overall inflation has begun to moderate in recent months, so have some measures of growth in wages and other compensation. For example, the 12-month increase in average hourly earnings hit a recent peak of 5.6 percent in March (which is when the Fed began raising interest rates) and has been falling gradually and fairly steadily since then, reaching an annual rate of 4.6 percent in December. The 3-month annualized change in average hourly earnings—4.1 percent in December—is running below the 12-month rate and is thus a signal of ongoing moderation. These are encouraging signs, but we need to see continued improvement across various measures of labor costs, because additional moderation is needed to bring inflation down to our 2 percent goal and because a significant escalation in wage growth could drive up longer-range inflation expectations. Those longer-range expectations have been fairly stable through this period of very high inflation, and we want it to stay that way because escalating expectations could drive inflation higher.
Let me turn now to the outlook for inflation. Last week’s report on the Consumer Price Index (CPI) showed that inflation continued to moderate in December, which was very welcome news. First, I am going to spell out why this was such good news, and then I am going to turn around and explain why I am still cautious about the inflation outlook and supportive of continued monetary policy tightening.
Overall headline inflation fell a tenth of a percent month over month in December, the first monthly drop since May 2020. The 12-month change in inflation peaked at 9 percent in June, and has fallen every month since, to 6.5 percent in December.
A big factor in the monthly decline in headline inflation in December was a significant drop in energy prices, which more than offset an increase in food prices. The FOMC targets headline inflation because food and energy are considerable expenses for most people, but they are more volatile than other components of the index, and by factoring them out, “core” inflation can provide a picture of where inflation is headed. Here also, we are seeing some progress. Yearly core inflation was down in December to 5.7 percent, from 6 percent in November and a peak of 6.6 percent in September. Over the past three months, core CPI inflation has run at an annualized rate of 3.1 percent, a noticeable drop from earlier in 2022.
Another encouraging sign is that higher inflation was less concentrated—the share of categories of different goods and services with inflation over 3 percent has declined in the past several months, from almost three fourths in early 2022 to less than one half in December. That’s good news because it indicates that broader inflationary pressure across the economy is easing.
Now, here’s why I am cautious about these latest results and why I am not ready yet to substantially alter my outlook for inflation. Month-over-month core CPI inflation actually ticked up in December from November and is pretty much where it was in October and where it was in March when we began raising interest rates. Although inflation measured over 12 months has been falling, December’s reading is still close to where it was a year ago. Core inflation was 6 percent year over year (YOY) in January 2022 and was 5.7 percent YOY last month. Thus, it basically moved sideways all year. So, while it is possible to take a month or three months of data and paint a rosy picture, I caution against doing so. The shorter the trend, the larger the grain of salt when swallowing a story about the future. Back in 2021, we saw three consecutive months of relatively low readings of core inflation before it jumped back up. We do not want to be head-faked. I will be looking for the recent improvement in headline and core inflation to continue.
Wages, as I indicated earlier, are another stream of data that I will be watching for evidence of continued progress to help ease overall inflation. Though recent hourly earnings data are a positive development, I need to see more evidence of wage moderation to sustainable levels. The Federal Reserve Bank of Atlanta’s Wage Growth Tracker has been running higher lately and has moderated less. The employment cost index for December won’t be out until the end of this month. Over time, we need to see wages grow more in line with productivity growth plus 2 percentage points, consistent with the FOMC’s inflation target.
Those are reasons that I am cautious about the recent good news, but it is good news. We have made progress. Six months ago, when inflation was escalating and economic output had flattened, I argued that a soft landing was still possible—that it was quite plausible to make progress on inflation without seriously damaging the labor market. So far, we have managed to do so, and I remain optimistic that this progress can continue.
I believe that monetary policy should continue to tighten, but using a comparison I employed in a speech a couple months ago, the view from the cockpit is very different at 30,000 feet than it is close to the ground. When the FOMC began raising the federal funds rate last spring from near zero, it made sense to move quickly. But after front-loading monetary policy tightening, with many unprecedented 75 basis point hikes in the federal funds rate target, by early December I believed the policy stance was slightly restrictive, and I supported a decision by the Committee to hike by a still considerable 50 basis points.2 To return to the airplane image, after climbing steeply and using monetary policy to significantly raise interest rates throughout the economy, it was apparent to me that it was time to slow, but not halt, the rate of ascent.
And in keeping with this logic and based on the data in hand at this moment, there appears to be little turbulence ahead, so I currently favor a 25-basis point increase at the FOMC’s next meeting at the end of this month. Beyond that, we still have a considerable way to go toward our 2 percent inflation goal, and I expect to support continued tightening of monetary policy.
I think that is probably enough from me, so that there will be more time for you to ask questions. Thank you again to the CFR for the opportunity to be here today.

Compliments of the U.S. Federal Reserve.
Footnotes:
1. The FOMC communicated its intentions for some time before March, and this guidance effectively began monetary policy tightening before raising rates and beginning the tapering of asset purchases that month. The views expressed here are my own and to not necessarily reflect those of my colleagues on the FOMC. Return to text

2. Each 75 basis point hike was the largest rate single increase since the FOMC began announcing its rate decisions in 1994. The Committee raised rates at individual meetings by larger amounts in the early 1980s, when it raised the federal funds rate to near 20 percent. Return to text
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Fragmentation could make it even more difficult to help many vulnerable emerging and developing economies that have been hard hit by multiple shocks
As policymakers and business leaders gather at the World Economic Forum in Davos, they are facing a Gordian knot of challenges .
From the global economic slowdown and climate change to the cost-of-living crisis and high debt levels: there is no easy way to cut through it. Added to this are geopolitical tensions that have made it even more difficult to address vital global issues.
Indeed, even as we need more international cooperation on multiple fronts, we are facing the specter of a new Cold War that could see the world fragment into rival economic blocs. This would be a collective policy mistake that would leave everyone poorer and less secure.
It would also be a stunning reversal of fortune. After all, economic integration has helped billions of people become wealthier, healthier, and better educated. Since the end of the Cold War, the size of the global economy roughly tripled, and nearly 1.5 billion people were lifted out of extreme poverty. This peace and cooperation dividend should not be squandered.
Rising fragmentation risks
And yet, not everyone has benefited from global integration. Dislocations from trade and technological change have harmed some communities. Public support for economic openness has declined in several countries. And since the global financial crisis, cross-border flows of goods and capital have been leveling-off.
But that’s only part of the story. Trade tensions between the world’s two largest economies have been rising amid a global surge in new trade restrictions. Meanwhile, Russia’s invasion of Ukraine has caused not only human suffering, but also massive disruptions of financial, food, and energy flows across the globe.
Of course, countries have always placed some restrictions on trade in goods, services, and assets for legitimate economic and national security considerations. Supply chain disruptions during the COVID-19 pandemic have also increased the focus on economic security and making supply chains more resilient.
Since the outbreak, mentions in companies’ earnings presentations of reshoring, onshoring, and near-shoring have increased almost ten-fold. The risk is that policy interventions adopted in the name of economic or national security could have unintended consequences, or they could be used deliberately for economic gains at the expense of others.
That would be a dangerous slippery slope towards runaway geoeconomic fragmentation.
Estimates of the cost of fragmentation from recent studies vary widely. The longer-term cost of trade fragmentation alone could range from 0.2 percent of global output in a limited fragmentation scenario to almost 7 percent in a severe scenario—roughly equivalent to the combined annual output of Germany and Japan. If technological decoupling is added to the mix, some countries could see losses of up to 12 percent of GDP.
Yet, according to new IMF staff analysis, the full impact would likely be even larger, depending on how many channels of fragmentation are factored in. In addition to trade restrictions and barriers to the spread of technology, fragmentation could be felt through restrictions on cross-border migration, reduced capital flows, and a sharp decline in international cooperation that would leave us unable to address the challenges of a more shock-prone world.
This would be especially challenging for those who are most affected by fragmentation. Lower-income consumers in advanced economies would lose access to cheaper imported goods. Small, open-market economies would be hard-hit. Most of Asia would suffer due to its heavy reliance on open trade.
And emerging and developing economies would no longer benefit from technology spillovers that have boosted productivity growth and living standards. Instead of catching up to advanced economy income levels, the developing world would fall further behind.
Focus on what matters most: trade, debt, and climate action
 
So, how can we confront fragmentation? By taking a pragmatic approach. This means focusing on areas where cooperation is essential, and delay is not an option. It also means finding new ways to achieve common objectives. Let me highlight three priorities:
First, strengthen the international trade system.
In a global economy beset with low growth and high inflation, we need a much stronger trade engine. Trade growth is expected to decline in 2023, which makes it even more critical to roll back the distortionary subsidies and trade restrictions imposed in recent years.
Strengthening the role of trade in the global economy begins with vigorous World Trade Organization reform and by concluding WTO-based market-opening agreements. But finding agreement on complex trade issues remains challenging, given the diverse World Trade Organization membership, increasing complexity of trade policy, and heightened geopolitical tensions.
In some areas, plurilateral agreements, among subsets of WTO members, can offer a path forward. Take the recent agreement on regulatory cooperation in service industries—from finance to call centers—which can reduce the cost of providing services across borders.
We also need to be pragmatic about strengthening supply chains. To be clear, while most supply chains have been resilient, recent disruptions to food and energy supplies have raised legitimate concerns. Still, policy choices such as reshoring could leave countries more vulnerable to shocks. IMF research shows that diversification can cut potential economic losses from supply disruptions in half.
Meanwhile, countries should carefully weigh the costs, at home and abroad, of national security measures on trade or investment. We also need to develop guardrails to protect the vulnerable from unilateral actions. A good example is the recently agreed requirement to exclude from food export restrictions the exports to humanitarian agencies such as the World Food Program.
But these efforts, while important, aren’t enough. We also need better policies at home, from improving social safety nets, to investing in job training, to increasing worker mobility across industries, regions, and occupations. This is how we can ensure that trade works for all.
Second, help vulnerable countries deal with debt.
Fragmentation could make it even more difficult to help many vulnerable emerging and developing economies that have been hard hit by multiple shocks. Take one particular challenge that many countries face: debt. Fragmentation will make it harder to resolve sovereign debt crises, especially if key official creditors are divided along geopolitical lines.
About 15 percent of low-income countries are already in debt distress and an additional 45 percent are at high risk of debt distress. Among emerging markets, about 25 percent are at high risk and facing default-like borrowing spreads.
There are signs of progress on the Group of Twenty’s Common Framework for debt treatment: Chad recently reached an agreement with its official and private creditors; Zambia is progressing toward a debt restructuring; and Ghana just became the fourth country to seek treatment under the Common Framework, sending a signal that it is seen as an important pathway for debt resolution. But official creditors have a lot more work to do.
Countries seeking debt restructuring under the Framework will need greater certainty on processes and standards, as well as shorter and more predictable timelines. And we need to improve processes for countries not covered by the Framework. To support these improvements, the IMF, World Bank and Indian G20 presidency are working with borrowers and public and private creditors to quickly establish a global sovereign debt roundtable, where we can discuss current shortcomings and make progress to address them.
These and other pragmatic actions, such as further progress on majority voting provisions in sovereign loans and climate resilient debt clauses, can help improve debt resolution. That would reduce economic and financial uncertainty, while helping countries get back to investing in their future.
Third, step up climate action.
Collective action is just as vital to address the climate crisis. Just last year, we saw climate disasters on all five continents, with $165 billion in damages in the United States alone. It shows the massive economic and financial risks of unmitigated global warming.
But last year also brought some good news. The agreement at COP27 to set up a loss and damage fund for the most vulnerable countries shows that progress is possible with enough political will. Now we must take further pragmatic steps to cut emissions and curb fossil fuels.
One potential game changer could be an international carbon price floor among major emitters. It would focus on carbon pricing or equivalent measures in an equitable process that would complement and reinforce the Paris Agreement. Or consider the “just energy transition partnerships” between groups of donors and countries such as South Africa and Indonesia.
We also need to step up climate finance to help vulnerable countries adapt. Innovative use of public balance sheets—such as credit guarantees, equity and first-loss investments—can help mobilize billions of dollars in private financing.
And, of course, we need better data around climate projects: harmonized disclosure standards and principles will help, as will taxonomies to align investments to climate goals.
The role of the IMF
In all these areas, the IMF will continue to support its members—through policy advice, capacity development efforts, and financial support.
Since the start of the pandemic, we have provided $267 billion in new financing. And thanks to the collective will of our membership, we provided a record $650 billion allocation of special drawing rights, boosting our members’ reserves. This allowed many vulnerable countries to maintain access to liquidity, freeing up resources to pay for vaccines and health care.
And we are now helping countries with stronger reserves to channel their SDRs to countries whose need is greater. This pragmatic measure could make all the difference in many countries. So far, we have around $40 billion in SDR pledges to our new Resilience and Sustainability Trust, which will help low- and vulnerable middle-income countries address structural challenges such as pandemics and climate change.
In other words, we know the global issues that matter most, and we know that confronting fragmentation in these vital areas is essential.
Pragmatic measures to fight fragmentation may not be the simple sword swipe that cuts the Gordian knot of global challenges. But any progress we can make in rebuilding trust and boosting international cooperation will be critical.
The discussions in Davos will be a hopeful sign that we can move in the right direction and foster economic integration that brings peace and prosperity to all.
Author:

Kristalina Georgieva, Managing Director, IMF

Compliments of the IMF.
The post IMF | Confronting Fragmentation Where It Matters Most: Trade, Debt, and Climate Action first appeared on European American Chamber of Commerce New York [EACCNY] | Your Partner for Transatlantic Business Resources.