A disapproving tone from the ECB

There is an unusual amount of meat in today’s European Central Bank monthly bulletin. Here – in pictures – are the highlights I have spotted so far.

First, the ECB’s been looking at past time lags between growth and bank lending to households and business. On the left is one of the charts it has published. The point it makes is that there is a significant delay before stronger growth feeds through into lending to business. In other words, current, extremely subdued amounts of borrowing, are unsurprising. ECB statisticians have done their calculations and reckon the idea that lending to business lags behind GDP growth trends by about three quarters is fairly robust. In contrast, lending to households leads growth - probably by about a quarter but that is less statistically certain. That could be because consumers pile back into housing when they think a recovery is close, while businesses tend to fall back on internal resources and wait before embarking on expansion plans.

Second, the ECB’s been looking into one of the most remarkable features of the current recession – its modest impact on eurozone unemployment. This chart shows there no simple relationship between trends in output and unemployment that applies to all countries. Despite steep falls in GDP, Germany (DE on the chart), Italy (IT) and the Netherlands (NL) have seen only a modest lengthening of jobless queues. Others – noticeably Spain (ES) and Ireland (IE) – have seen disproportionately larger increases in unemployment. The explanation almost certainly lies in differences in labour market structures and government schemes to stop companies laying-off workers. The ECB sticks to its previous disapproving tone: “To the extent that such measures hinder the re-allocation of workers from less to more productive sectors, or discourage the necessary restructuring of euro area enterprises in the face of new economic challenges, the prolonged use of such schemes may harm the euro area’s productivity growth and international competitiveness in the longer term.”

Third, I thought this chart was interesting, showing the impact of “cash for clunkers” schemes across the eurozone.

As the ECB notes, government subsidies for consumers trading in old vehicles, were not sufficient to compensate for the decline in overall demand for cars. The ECB says they helped support the car industry in the first half of this year but again adopts a disapproving tone. “The upward impact on overall euro area activity in 2009 is likely to remain rather limited and may turn negative in 2010. In general, given their distortionary effects, such measures should be implemented with caution.”

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