ANNUAL REPORT 2008 - Polymer Bank Notes of the World

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calculated as the balance between gross savingand gross capital formation (see Chart 21). Thefinancing gap experienced by non-financialcorporations in the euro area in 2007 and up tothe third quarter of 2008 resulted from decreasesin corporate saving and, to a lesser extent,increases in real investment in relation to GDP.During the first part of 2008 falling corporatesaving was mainly the result of rising interestpayments.A FURTHER RISE IN CORPORATE DEBTWith regard to developments in the balancesheet position of non-financial corporationsin the euro area, the protracted rise in debtfinancing led to a further increase in debt ratios(see Chart 22). In the fourth quarter of 2008the debt-to-GDP and debt-to-gross operatingsurplus ratios rose to 80.5% and 403%respectively. After a period of consolidationbetween 2002 and 2004, the debt ratios ofnon-financial corporations have continuouslyincreased over the last four years. The ratioof debt to financial assets of non-financialcorporations edged upwards in most of 2008,Chart 22 Debt ratios of non-financialcorporations(percentages)410390370350330310290ratio of debt to gross operating surplus (left-hand scale)ratio of debt to GDP (right-hand scale)270501999 2000 2001 2002 2003 2004 2005 2006 2007 2008Sources: ECB, Eurostat and ECB calculations.Notes: Debt is reported on the basis of the quarterly Europeansector accounts. It includes loans, debt securities issued andpension fund reserves. Included is information up to the fourthquarter of 2008.85807570656055interrupting the declining trend observed sincethe first quarter of 2003. The combination ofhigher debt and rising interest rates translatedinto a significant increase in the net interestburdens of non-financial corporations in thecourse of 2008.2.3 PRICE AND COST DEVELOPMENTSOverall HICP inflation averaged 3.3% in 2008,which was a sharp increase by comparisonwith previous years – when annual inflationrates clustered around 2.2% – and well abovethe ECB’s definition of price stability overthe medium term (see Table 1). The increasefor 2008 as a whole resulted from two sharplydistinct patterns in HICP developments over thecourse of the year: starting from an already highlevel at the end of 2007 of 3.1%, annual inflationrates grew further to reach a peak of 4.0% inJune and July 2008, but receded thereafter, at arapid pace in the last few months of the year, tostand at 1.6% in December.The sharply contrasting overall HICP inflationdevelopments in 2008 were dominated bypatterns in global commodity prices (energyprices, as well as the prices of other commodities,including food) (see Chart 23). In the first partof the year, booming world demand continuedto push up commodity prices, which reachedextremely high levels, while the rapid slowdownin activity in the second part of the year, whichdeveloped into a pronounced contraction by theyear-end, abruptly pushed them down again.Most prominently, oil prices continued to surgein the first half of 2008, following rapid increasesin 2007, and reached a historical high in earlyJuly against the background of tight supply anddemand conditions. During the second half ofthe year oil prices fell precipitously, ending atlevels well below those seen at the beginning ofthe year. In a parallel development, processedfood price inflation, which began from alreadyelevated levels at the end of 2007, increasedsharply during the first part of the year as a resultof a worldwide tightening in food commodityinventories, before receding rapidly towardsECBAnnual Report200853
Table 1 Price developments(annual percentage changes, unless otherwise indicated)2006 2007 2008 2007 2008 2008 2008 2008 2008 2009Q4 Q1 Q2 Q3 Q4 Dec. Jan.HICP and its componentsOverall index 2.2 2.1 3.3 2.9 3.4 3.6 3.8 2.3 1.6 1.1Energy 7.7 2.6 10.3 8.1 10.7 13.6 15.1 2.1 -3.7 -5.3Unprocessed food 2.8 3.0 3.5 3.1 3.5 3.7 3.9 3.0 2.8 2.6Processed food 2.1 2.8 6.1 4.5 6.4 6.9 6.7 4.3 3.5 2.7Non-energy industrial goods 0.6 1.0 0.8 1.0 0.8 0.8 0.7 0.9 0.8 0.5Services 2.0 2.5 2.6 2.5 2.6 2.4 2.6 2.6 2.6 2.4Other price and cost indicatorsIndustrial producer prices 1) 5.1 2.8 6.2 4.0 5.4 7.1 8.5 3.7 1.6 .Oil prices (EUR per barrel) 2) 52.9 52.8 65.9 61.0 64.2 78.5 77.6 43.5 32.1 34.3Commodity prices 3) 24.8 9.2 4.4 1.6 11.9 7.1 8.6 -10.7 -17.1 -20.7Sources: Eurostat, Thomson Financial Datastream, Hamburg Institute of International Economics and ECB calculations.Note: Data on industrial producer prices refer to the euro area including Slovakia.1) Excluding construction.2) Brent Blend (for one-month forward delivery).3) Excluding energy; in euro.the end of the year. By contrast, HICP inflationexcluding energy and food (processed andunprocessed) remained broadly stable (at 1.9%in 2008 as compared with 1.8% in 2007).Labour costs accelerated during the first halfof 2008, with substantial upward pressure onunit labour costs in the context of a markedcyclical decline in labour productivity growth.This raised serious and growing concern aboutthe risk of significant second-round effectsemerging in the euro area, which peaked aroundthe middle of the year. These concerns recededin the autumn as the economy entered a phase ofpronounced contraction.Chart 23 Breakdown of HICP inflation: maincomponents(annual percentage changes; monthly data)6420-2total HICP (left-hand scale)unprocessed food (right-hand scale)energy (right-hand scale)2003 2004 2005 2006 200720081815129630-3-6Accordingly, consumer inflation perceptions andexpectations, which had risen markedly duringthe first part of the year, reaching their highestlevels since the introduction of the euro, startedto moderate towards the end of the year.86total HICP excluding energy and unprocessed foodprocessed foodnon-energy industrial goodsservices86HICP INFLATION WAS SIGNIFICANTLY INFLUENCEDBY ENERGY AND FOOD PRICE DEVELOPMENTSThe volatility in commodity prices was themain factor driving the pronounced movementsin euro area HICP inflation during 2008. Thesteady increase in the annual rate, to a peak of4.0% in June and July, followed unprecedentedincreases in energy, industrial and food420-22003 2004 2005 2006 2007Source: Eurostat.2008420-254 ECBAnnual Report2008
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EN2008EUROPEAN CENTRAL BANK ANNUAL
Page 3 and 4: © European Central Bank, 2009Addre
Page 5 and 6: CHAPTER 4FINANCIAL STABILITY AND IN
Page 7 and 8: 7 Statistical accounting consequenc
Page 9: ABBREVIATIONSCOUNTRIESOTHERSBE Belg
Page 12 and 13: in the course of the year, in line
Page 14 and 15: currencies, T2S will be a major ste
Page 16 and 17: CHAPTER 1ECONOMICDEVELOPMENTS ANDMO
Page 18 and 19: Chart 1 ECB interest rates and mone
Page 20 and 21: Despite moderating, the annual grow
Page 22 and 23: substantial downward revisions in r
Page 24 and 25: in July, annual inflation in the OE
Page 26 and 27: As regards the Chinese economy, rea
Page 28 and 29: generally tighter financing conditi
Page 30 and 31: were recorded in December, but thes
Page 32 and 33: was driven mainly by developments i
Page 34 and 35: market tensions, particularly for l
Page 36 and 37: anking and financial system. At the
Page 38 and 39: cash flows to compensate for a redu
Page 40 and 41: quarter of 2008 and -0.1% in Decemb
Page 42 and 43: whereby investors’ uncertainty su
Page 44 and 45: September onwards, amid the great u
Page 46 and 47: Chart C Trading volumes for governm
Page 48 and 49: sponsored rescue plans were initiat
Page 50 and 51: The annual growth rate of consumer
Page 52 and 53: end of 2007. By December 2008 this
Page 56 and 57: commodity prices (see Box 4). Conve
Page 58 and 59: Chart D Longer-term inflation expec
Page 60 and 61: apidly to 1.7% in December, mainly
Page 62 and 63: productivity slowed to 0.2% in the
Page 64 and 65: Table 3 Composition of real GDP gro
Page 66 and 67: Corporate investment, which had exp
Page 68 and 69: Box 5LABOUR MARKET DEVELOPMENTS IN
Page 70 and 71: Chart C Breakdown of employment gro
Page 72 and 73: Box 6DEVELOPMENTS IN THE ISSUANCE A
Page 74 and 75: Chart B Government bond yield sprea
Page 76 and 77: Box 7STATISTICAL ACCOUNTING CONSEQU
Page 78 and 79: warranted because of the need to co
Page 80 and 81: sharp depreciation of the euro was
Page 82 and 83: prices in the first eight months of
Page 84 and 85: focused more on the production rath
Page 86 and 87: segments and, in turn, affected eur
Page 88 and 89: and Bulgaria registered robust grow
Page 90 and 91: In the remaining non-euro area EU c
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Page 94 and 95: Table 10 Official monetary policy s
Page 96 and 97: the Bank of England and Sveriges Ri
Page 98 and 99: CHAPTER 2CENTRAL BANKOPERATIONSAND
Page 100 and 101: Box 10MONETARY POLICY OPERATIONS DU
Page 102 and 103: Chart A Liquidity supply through op
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franc funding needs of banks with n
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MINIMUM RESERVE SYSTEMCredit instit
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with the ample allotments in the fi
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2008. By contrast, the average shar
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and SDR holdings increased by aroun
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and the ECB). As a result of carefu
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cross-CSD settlement. T2S will thus
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ELIGIBLE LINKS BETWEEN NATIONAL SEC
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Chart 48 Number of euro banknotes i
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3.3 BANKNOTE PRODUCTION AND ISSUANC
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4 STATISTICSThe ECB, assisted by th
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iii) payments statistics and iv) de
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5 ECONOMIC RESEARCHThe main functio
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were organised to disseminate resea
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the Financial Collateral Directive,
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on the Banque centrale du Luxembour
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standards by individual Eurosystem
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CHAPTER 3ENTRY OF SLOVAKIAINTO THE
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Table 13 Main economic indicators f
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As of January 2009 Slovakia is thus
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3 OPERATIONAL ASPECTS OF THE INTEGR
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4 THE CASH CHANGEOVER IN SLOVAKIATH
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Willem F. Duisenberg accepting the
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1 FINANCIAL STABILITYThe Eurosystem
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With regard to merger and acquisiti
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with the principles set out in Octo
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2.2 BANKINGCAPITAL REQUIREMENTS DIR
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3 FINANCIAL INTEGRATIONThe Eurosyst
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The market for short-term paper in
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de France and the Banca d’Italia.
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and the Eurosystem’s business con
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4.2 RETAIL PAYMENT SYSTEMS ANDINSTR
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for Clearing and Settlement, and th
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Willem F. Duisenberg at his farewel
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1 EUROPEAN ISSUESIn 2008 the ECB co
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for financial institutions, to faci
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1.3 DEVELOPMENTS IN AND RELATIONS W
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On a number of occasions in 2008, t
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countries have voiced support for t
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Former Italian President Carlo Azeg
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1 ACCOUNTABILITY VIS-À-VIS THE GEN
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implementation of the steps foresee
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CHAPTER 7EXTERNALCOMMUNICATION
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2 COMMUNICATION ACTIVITIESThe ECB a
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Panel at the Fifth ECB Central Bank
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1 DECISION-MAKING BODIES AND CORPOR
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Council decided on the main aspects
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1.3 THE EXECUTIVE BOARDThe Executiv
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1.4 THE GENERAL COUNCILThe General
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The Eurosystem/ESCB committees have
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members of the Executive Board. 13
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for their current position. On the
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statistical office (Statistisches B
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4 ANNUAL ACCOUNTS OF THE ECB212 ECB
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function, and by the Governing Coun
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BALANCE SHEET AS AT 31 DECEMBER 200
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PROFIT AND LOSS ACCOUNT FOR THE YEA
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mid-market prices on 30 December 20
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The defined benefit obligation is c
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NOTES ON THE BALANCE SHEET1 GOLD AN
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Eurosystem (see “Banknotes in cir
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(see “Banknotes in circulation”
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values at which the transactions we
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15 CAPITAL AND RESERVESCAPITALPursu
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epresenting the remainder of its ca
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NOTES ON THE PROFIT AND LOSS ACCOUN
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individual circumstances. Basic sal
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5 CONSOLIDATED BALANCE SHEET OF THE
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ANNEXES
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Number Title OJ referenceECB/2008/1
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Number Title OJ referenceECB/2009/1
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Number 2 Originator SubjectCON/2008
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Number 4 Originator Subject OJ refe
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oth the marginal lending facility a
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OVERVIEW OF THE ECB’S COMMUNICATI
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y the respective NCBs will also be
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OPEN MARKET OPERATIONS BY CURRENCYE
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USD operationsType oftransaction 1)
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DOCUMENTS PUBLISHED BY THEEUROPEAN
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95 “Financial stability challenge
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1012 “Petrodollars and imports of
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GLOSSARYThis glossary contains sele
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Economic analysis: one pillar of th
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Financial stability: condition in w
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MFIs (monetary financial institutio
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Reserve base: the sum of the eligib
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ANNUAL REPORT 2008 - Polymer Bank Notes of the World

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