Report on Economic Development in December 2010 - Summary
The year-on-year rate of euro area inflation, as measured by the harmonised index of consumer prices (HICP), increased to 2.2% in December. The exchange rate of the euro against the US dollar appreciated during December. At its January meeting, the Governing Council of the ECB, decided that the interest rate on the main refinancing operations would stay at 1.00% and that interest rates on the marginal lending facility and the deposit facility would also remain unchanged, at 1.75% and 0.25%, respectively.
On 1 January 2011, Estonia adopted the euro and the country’s central bank – Eesti Pank – thereby became a member of the Eurosystem. The number of Eurosystem members that are national central banks of EU Member States that have adopted the euro was thus extended to seventeen.
In December, the annual rate of HICP inflation accelerated in the Czech Republic, Poland and Hungary, to 2.3%, 2.9% and 4.6%, respectively. The exchange rate of the Czech koruna against the euro depreciated in December in comparison with the previous month, while both the Polish zloty and Hungarian forint strengthened against the European single currency. Key interest rates in the Czech Republic and Poland remained unchanged in December. In Hungary, however, the Magyar Nemzeti Bank, decided for the second month in a row to raise the base rate by 0.25 percentage point, to 5.75%.
Compared with the previous month, Slovakia’s annual HICP inflation rate in December rose by 0.3 percentage point, to stand at 1.3%. The HICP rate was influenced by the accelerated year-on-year rise in prices of food and services and the slower annual decline in prices of energy and non-energy industrial goods. Industrial producer prices in November again fell in year-on-year terms, largely due to the persisting annual decline in energy prices. Price inflation of manufacturing products and raw materials also decelerated. The annual increase in water and sewerage rates remained the same as in October. A slightly slower month-on-month increase in November was recorded by prices of construction work and building materials as well as by prices of agricultural products.
The current account balance for November showed an improvement on the previous month. The current account deficit narrowed under the effect of the current transfers surplus as well as a reduction in the deficit on the income and services balances. The current account deficit was adversely affected by a decline in the trade balance surplus. The year-on-year increase in the industrial production index accelerated more substantially in November, reflecting mainly the growth in global demand but also probably to some extent the pre-Christmas build-up of inventories. Construction output in November recorded a slight rise in year-on-year terms. The same happened in sales growth, mainly because of an upturn in sales in the sectors of industry, the sale and maintenance of motor vehicles, and wholesale trade. The overall economic sentiment indicator rose in December, compared with the previous month, to reach its highest level since September 2008. The indicator was boosted by rising confidence in industry, construction, retail trade, and services. The consumer confidence indicator deteriorated in comparison with the previous month.
Average nominal and real wages showed stronger year-on-year growth in November, compared with the previous month. While wage growth was higher in all the sectors under review, it was most pronounced in the selected services sector. As for employment, its average year-on-year decline in selected sectors continued in November, while annual employment growth was maintained in industry and in transport and storage. The rate of registered unemployment reached 12.2% in November, representing a decrease compared with the previous month.
Non-financial corporations and households increased their deposits in November, and both sectors maintained year-on-year growth in deposits. In the non-financial corporations sector, it was mainly the most liquid deposits that increased, while deposits with an agreed maturity of up to two years declined. Households, too, were gravitating towards demand deposits. As for their fixed-term deposits, the rise in deposits with an agreed maturity of over two years was partially offset by the decline in deposits with an agreed maturity of up to two years. The credit expansion continued in November. The growth in lending to the private sector was largely attributable to loans to non-financial corporations, which increased and recorded a second month of positive year-on-year growth. The annual rise in loans to households continued to accelerate. The largest share of lending to non-financial corporations comprised operating loans and loans for the financing of inventories. In the household sector, lending growth was driven mostly by house purchase loans and to a lesser extent by consumption loans. Whereas retail interest rates on loans to non-financial corporations increased slightly in November, lending rates for households fell modestly. As regards the remuneration of deposits of non-financial corporations, the interest rate on short-term deposits fell and the rate on long-term deposits increased slightly. Deposit rates for households showed a rising tendency.
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