ANNUAL REPORT 2008 - Polymer Bank Notes of the World

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apidly to 1.7% in December, mainly on accountof energy and food price developments. Theannual rate of change in energy producer pricesreached a peak of 24.9% in July 2008, but hadfallen back to 1.6% by December.Excluding construction and energy, the annualgrowth rate of industrial producer prices reachedits 2008 peak of 4.4% in July, before decliningto 1.6% in December. This marked moveaffected intermediate and consumer goods,although to varying degrees and at differenttimes, but had less of an impact on capital goods(see Chart 25).Intermediate goods price inflation acceleratedduring the first eight months of the year, peakingat 6.0% in August. In the first half of the year,intermediate goods prices were still affectedby upward pressure from increasingly higherindustrial raw materials and energy prices.During the second half of the year, the latter’sdecline in world markets and the slowdown inactivity dampened output price developmentsin many parts of the intermediate goods sector.By the end of the year, many output prices werefalling in the context of a sharp contraction inactivity.Movements in the annual growth rate of capitalgoods prices were delayed and more subdued,with a slight acceleration to 2.2% in September(reversing the downward trend observed in2007) which levelled off towards the end of theyear as competition intensified in the context ofa rapid fall in demand.Further down the production chain, the sharpacceleration in consumer goods prices observedin the last few months of 2007 continued in thefirst half of 2008. The annual rate of change inoverall consumer goods prices rose to 4.7% inMarch 2008, the highest rate since the beginningof Monetary Union in 1999, mainly driven bynon-durable consumer goods prices, whichreflected global food price pressures. Excludingtobacco and food prices, the annual rate ofchange in consumer goods prices remained flatthroughout the year.Chart 25 Breakdown of industrial producerprices(annual percentage changes; monthly data)2824201612840-4energy (left-hand scale)industry excluding construction (right-hand scale)intermediate goods (right-hand scale)capital goods (right-hand scale)consumer goods (right-hand scale)2003 2004 2005 2006 2007Source: Eurostat.Note: Data refer to the euro area including Slovakia.2008Overall, by the end of the year, the generalweakening in euro area demand had resultedin considerably more competitive marketconditions at various stages of production. Thismore competitive environment, combined withfalling world commodity prices, was reflectedin widespread reports of price falls (or pricestabilisation), in input as well as output prices,for both manufacturing and services.LABOUR COSTS ACCELERATED MARKEDLYAvailable labour cost indicators for the euro areasuggest a substantial acceleration around the endof 2007 and the beginning of 2008, followingyears of wage moderation. The average annualgrowth rate of compensation per employee inthe first three quarters of the year was 3.3%,notably higher than the average annual growthrates recorded in the period 2005-07, whichranged from 1.8% to 2.5% (see Table 2).Hourly compensation provides a similar picture,although the first quarter was affected by theearly timing of Easter in 2008, thus resulting ina spike in the series in that quarter. Negotiatedwages also accelerated in the course of 2008from the band of between 2.1% and 2.3% within14121086420-2ECBAnnual Report200859
Table 2 Labour cost indicators(annual percentage changes, unless otherwise indicated)2006 2007 2008 2007Q4Negotiated wages 2.3 2.1 3.2 2.1 2.8 2.9 3.4 3.5Total hourly labour costs 2.5 2.6 . 2.9 3.5 2.8 4.0 .Compensation per employee 2.2 2.5 . 2.9 3.1 3.4 3.5 .Memo itemsLabour productivity 1.3 0.8 . 0.4 0.5 0.2 -0.1 .Unit labour costs 0.9 1.7 . 2.5 2.6 3.2 3.6 .Sources: Eurostat, national data and ECB calculations.2008Q12008Q22008Q32008Q4which they had fluctuated in past years, risingto 2.9% in the first half of the year, 3.4% in thethird quarter and 3.5% in the fourth quarter.The acceleration in wage growth in the firsthalf of the year may have reflected, aside fromsome differences in employment growth ratesacross wage levels, the prevailing tightnessin the labour market and the direct or indirectimpact of past HICP developments. Given thesizeable hike in global commodity prices, thevery tight labour market conditions and the longlag required for movements in economic activityto have a decisive impact on labour costs,there was a significant risk by mid-2008 thatsecond-round effects, stemming in particularfrom the indexation of wages to high inflationoutcomes (even if temporary), might outweighany possible dampening impact on wage costsstemming from the gradual slowdown in activityforeseen at that time.The rapid alleviation of global inflation pressures,which saw headline HICP inflation fall backbelow 2% by December 2008, and the sudden andstronger than expected contraction in euro areaactivity considerably weakened the risk of broadbasedsecond-round effects materialising. Firmswere expected to implement measures to containlabour costs in view of the uncertainty surroundingthe euro area outlook, and the rapid deteriorationin labour market conditions also contributed to themoderation of wage cost pressures.Sectoral data indicate some heterogeneousbehaviour across sectors. Growth rates in alllabour cost indicators were particularly highfor the construction sector in 2008, perhapsreflecting some composition effects, with lay-offsconcentrated among lower-paid workers amidpronounced regional differences. Compensationper employee in the services sector also increasedstrongly, particularly with regard to non-marketservices (see Chart 26). By contrast, labour costinflation in the industrial sector increased onlymoderately on average and displayed a highdegree of volatility in the course of 2008.Given the slowdown in activity and the expectedadverse cyclical impact on labour productivity,unit labour costs accelerated rapidly, reducingbusiness margins. Annual growth in labourChart 26 Sectoral compensation per employee(annual percentage changes; quarterly data)6543210industry excluding constructionconstructionservices2003 2004 2005 2006 2007Sources: Eurostat and ECB calculations.Note: Data refer to the euro area including Slovakia.6543210200860 ECBAnnual Report2008
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EN2008EUROPEAN CENTRAL BANK ANNUAL
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© European Central Bank, 2009Addre
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CHAPTER 4FINANCIAL STABILITY AND IN
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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 54 and 55: calculated as the balance between g
Page 56 and 57: commodity prices (see Box 4). Conve
Page 58 and 59: Chart D Longer-term inflation expec
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
Page 92 and 93: Estonian kroon and the Lithuanian l
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
Page 104 and 105: franc funding needs of banks with n
Page 106 and 107: MINIMUM RESERVE SYSTEMCredit instit
Page 108 and 109: 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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