ANNUAL REPORT 2008 - Polymer Bank Notes of the World

prices in the first eight months of the year,were the main factors behind this development.The higher deficit in current transfers andthe shift into deficit of the income componentalso contributed to the overall deteriorationin the current account balance. At the sametime the surplus in services, which stood at€50.6 billion in 2008, decreased only marginally(by €2.6 billion) compared with the previousyear (see Chart 33).The contraction of goods exports in the courseof 2008 can be largely explained by the fall inglobal demand and possibly by a deteriorationin trade financing conditions worldwide. Aftera temporary rebound in the first quarter of theyear, euro area exports to the United States andother OECD countries, as well as to China andthe rest of Asia, contracted, while exports to theEU Member States that have joined the EU since2004 also weakened. By contrast, the growth inexports to OPEC countries remained robust overthe entire year, amid strong economic growthin these countries and wealth effects from oilrevenues (see Chart 34).The decline in euro area price and costcompetitiveness observed since 2001 was partlyreversed after mid-2008 owing to the depreciationof the euro. The moderation in the growth ofeuro area export prices in the first half of the yearmay indicate that euro area firms adjusted theirprofit margins to offset the decline in price andcost competitiveness (see also Box 9).Box 9RECENT DEVELOPMENTS IN EURO AREACOMPETITIVENESSAn assessment of the international priceand cost competitiveness of the euro area –which also reflects the competitiveness of theindividual euro area countries – can provideimportant information for monitoring theeuro area economy. This box therefore looksat developments in euro area competitivenessas measured by various real EERs, both at theaggregate and individual Member State levels.In summary, these indicators show a decline inthe euro area’s price and cost competitivenessover the past decade, owing largely to thenominal appreciation of the exchange rate ofthe euro over the same period. Although thisresult holds true irrespective of the deflatorsused, there is considerable heterogeneity incompetitiveness developments across theindividual euro area countries.Chart A Nominal and real effective exchangerates of the euro(index: Q1 1999 = 100; quarterly data)120115110105100959085range of real EERsnominal EER80801999 2000 2001 2002 2003 2004 2005 2006 2007 2008120115110105100Source: ECB calculations.Notes: Last observation refers to the fourth quarter of 2008.The real EER in the last quarter of 2008 is available only on thebasis of the CPI and the PPI.959085Looking at the euro area as a whole,Chart A compares the evolution of the nominal EER of the euro and a range drawn from fivereal EER indices based on different deflators. 1 Overall, the various measures reveal a decrease1 The five deflators are the CPI, producer prices, GDP, unit labour costs in manufacturing and unit labour costs in the total economy.ECBAnnual Report200881