Central banks

Mapping the maze: a system-wide analysis of commercial real estate exposures and risks

11/05/2024 European Central Bank Central banks

This article analyses the complex linkages between commercial real estate (CRE) markets and the financial system. Examining data from a wide range of sources this article presents the first system-wide mapping of CRE exposures in the euro area. The exercise identifies several sectors – real estate companies, real estate investment funds and real estate investment trusts – with particularly large CRE exposures. Structural vulnerabilities among these key players increase their exposure to CRE market shocks and the likelihood that they could amplify these shocks.

The performance of Eurosystem/ECB staff projections for economic growth since the COVID-19 pandemic

10/31/2024 European Central Bank Central banks

Following a series of analyses on the accuracy of Eurosystem/ECB staff projections for inflation in recent years, this box shifts the focus to staff projections for growth. It shows that since 2022, the growth projections have been very reliable in the very short term but have tended to be too optimistic over one-year horizons. Private consumption and, to a lesser extent, investment, have tended to disappoint, due in part to monetary policy being tighter than initially assumed and uncertainty about its economic impact.

The link between oil prices and the US dollar: evidence and economic implications

10/31/2024 European Central Bank Central banks

In recent years rising oil prices have often coincided with a strengthening of the US dollar. A positive correlation means that oil imports priced in local currencies become more expensive for oil importers such as the euro area, adding to inflation dynamics. Historically, there has been no systematic co-movement between oil prices and the US dollar. However, recent studies suggest that a positive correlation might have become the new normal since the United States became a significant oil exporter.

The impact of special-purpose entities on euro area cross-border financial linkages

10/31/2024 European Central Bank Central banks

This box presents newly released data on the activities of special-purpose entities (SPEs) in the external sector of the euro area. It shows that SPEs make a significant contribution to cross-border financial linkages. Overall, SPEs account for around a third of euro area foreign direct investment positions and more than 10% of total euro area cross-border financial linkages. Their importance varies substantially across countries. Although SPEs inflate the gross external positions of the euro area, their impact on the net international investment position is limited.

Decoding revisions in policy rate expectations: insights from the Survey of Monetary Analysts

10/31/2024 European Central Bank Central banks

This box analyses the revisions in policy rate path expectations observed in the Survey of Monetary Analysts (SMA) and identifies key drivers of these revisions. Amid the interest rate hikes of 2022 and 2023, financial markets and analysts made frequent and sizeable adjustments to their expectations for ECB policy rate levels. SMA participants’ macroeconomic expectations, particularly changes regarding headline inflation and GDP growth, played a significant role in shaping revisions to expectations for deposit facility rate (DFR) levels, especially during the surge in inflation.

Euro area fiscal position in 2024

10/30/2024 European Central Bank Central banks

This box provides an overview of fiscal developments in 2024 – as reflected in revisions in fiscal positions across rounds of Eurosystem and ECB staff macroeconomic projections. For the euro area as a whole and in groups of countries with both high and low debt ratios, the cyclically adjusted fiscal positions projected for 2024 have gradually weakened since the September 2023 projection round. Overall, fiscal positions remain weaker in the high-debt country group than in the low-debt group.

Geopolitical fragmentation in global and euro area greenfield foreign direct investment

10/30/2024 European Central Bank Central banks

This box illustrates how aggregate greenfield foreign direct investment (FDI) flows are showing increasing signs of fragmentation along geopolitical fault lines. Euro area outward flows are following this trend, with greenfield investments increasingly tilted towards the United States and away from China. However, firms have also stepped up investment between geopolitical blocs to boost local production content in anticipation of protectionist measures or retaliatory tariffs.

Banks lose – someone gains: Households’ unequal exposure to financial distress

10/30/2024 European Central Bank Central banks

Is the burden of distress in the banking sector shared equally among households, or is it distributed unevenly? Following the global financial crisis, the economic consequences of severe disruptions to the banking sector and the unequal impact of recessions have become a key concern of macroeconomic policy. This article examines how temporary banking sector losses affect households differently according to their income levels. The analysis reveals that low-income households bear most of the burden, while high-income households tend to be less adversely affected.

The Survey on the Access to Finance of Enterprises: monetary policy, economic and financing conditions and inflation expectations

10/29/2024 European Central Bank Central banks

The Survey on the Access to Finance of Enterprises (SAFE) provides information on the financing needs of euro area firms, their economic performance, and the availability of external funding. The article illustrates the role that the SAFE has played over the past 15 years. First, it discusses the contribution of the survey to assessing the transmission of monetary policy decisions to firms’ access to finance and their financing conditions. Second, the article shows how SAFE-based data provide timely evidence of the impact of economic crises on firms’ performance.

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