The European Central Bank or ECB balance sheet is 4.7 trillion Euros or over 40% of Eurozone GDP (July 2019 edition)

Apparently, the European Central Bank (ECB) balance sheet was meant to shrink significantly in 2019. It has shrunk just 0.5% in 2019 until July 5th (as against 5% for the Federal Reserve in the same period).

At 4.67 trillion Euros (or around 41% of Euro area or Eurozone GDP), it doesn’t look like things are going to change quickly.

ECB Balance Sheet until July 2019

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The European Central Bank says interest rates would remain at record lows until the end of the year; Eurozone growth forecast slashed; New monetary stimulus TLTRO-III announced

The Governing Council of the European Central Bank (ECB) expects the key ECB interest rates to remain at their present levels at least through the end of 2019.

The interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility are 0.00%, 0.25% and -0.40% respectively and these rates are expected to remain in place at least until the end of 2019.

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Sweden’s first interest rate hike in seven years would put pressure on the European Central Bank to act

Sweden’s Central Bank, the Riksbank raised interest rates for the first time in seven years on Thursday which might cause further European monetary tightening. Riksbank’s benchmark repo rate was raised 25 bps from -0.5% earlier to -0.25%. It still remains negative though.

Sweden Repo Rate December 2018

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Here’s how the European Central Bank or ECB could unwind or reduce its balance sheet plus what is the new normal for the ECB?

The European Central Bank (ECB) only started its Quantitative Easing (or QE) program in March 2015 in order to fight ultralow inflation in the Eurozone (also called the Euro Area). It somewhat worked by weakening the Euro (€), increasing exports, giving the stock market a boost and drastically lowering financing costs for European governments and corporations. This caused the ECB balance sheet to soar over €4.5 trillion or 45% of Eurozone GDP.

ECB Balance Sheet until November 2018
Data Source: ECB

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Here’s how much the balance sheets of the Bank of Japan, the Swiss National Bank, the Federal Reserve and the European Central Bank have grown this century

Central Banks have grown their balance sheets significantly in the past 20 years and almost exponentially since the 2008 financial crisis. Here’s how much the balance sheets of the Bank of Japan, the Swiss National Bank, the Federal Reserve and the European Central Bank have grown in the 21st century,

Bank of Japan

Total assets: 540.8036 trillion Yen (JPY) = 4.93 trillion US Dollars (USD)
As of date: May 1, 2018
Asset size as percentage of GDP: 101% of GDP

Interesting information: The Bank of Japan has a target to buy 6 trillion Yen ($54 billion) worth of exchange traded funds a year. It now holds almost 82% of all ETFs in Japan and is indirectly the largest shareholder in many large Japanese companies, almost about half of listed companies in Japan.

Source: Bank of Japan

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The U.S. and mainland Europe have moved in different directions over the past year on interest rates, equity returns, bond yields and government borrowing

Interest Rates

What a difference a year makes. The Federal Reserve has hiked interest rates thrice (in December, March and June) with a target rate range of 1.75% to 2% now. The Eurozone meanwhile maintains its zero-interest rate policy.

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This is what is likely to happen when the European Central Bank ends bond buying

The European Central Bank (ECB) announced on Wednesday that it will halve its bond buys to 15 billion Euros (from the current 30 billion Euros) a month from October then shut the programme at the end of the year.

Source: European Central Bank

ECB’s balance sheet has increased by 2 trillion Euros since 2015 when it announced its bond buying programme. 2-year yields for most of the Eurozone countries are currently negative and 10-year yields in most cases are lower than that of the United States. The European Central Bank (ECB) is by far the biggest holder of European bonds and the biggest (almost 90%) buyer of the weaker Eurozone (Italy, Spain, Portugal and Greece) countries debt since 2015. The ECB balance sheet is now over 4.5 trillion Euros, some 45% of Eurozone GDP.

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Here is how much total assets or balance sheets of Central Banks have grown in the 21st century

Central Banks have grown their balance sheet in the past 20 years and almost exponentially since the 2008 financial crisis

Bank of Japan

Total assets: 540.8036 trillion Yen (JPY) = 4.93 trillion US Dollars (USD)
As of date: May 1, 2018
Asset size as percentage of GDP: 101% of GDP

Source: Bank of Japan

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Weekly Overview: Q1 2018 GDP numbers; ECB on QE; US bond yields soar; Other things

Q1 2018 GDP

The US, the UK, France and Spain all reported GDP numbers over the last week.

US real GDP increased at an annual rate of 2.3% in the first quarter of 2018 as per an advance estimate released by the Bureau of Economic Analysis. Read more about it here.

Personal consumption collapsed, with vehicle sale falling significantly. Business inventories were up significantly too. Total employee compensation (which includes wages and benefits) rose 2.7% over past 12 months, up from 2.4% a year ago and the highest since Q3 2008, while the household savings rate fell to a multi-year low of 3.1%.

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Europe’s lost economic decade in charts

  • Parts of the European Union have seen GDP per capita shrink between 2007 and 2017 and the overall compounded annual growth rate for the European Union was just 1.2%
  • GDP growth for the European Union between 2007 and 2017 adjusted for inflation was negative
  • Banks in Greece, Cyprus, Portugal and Italy have a non-performing loan ratio of over 10% a decade on from the financial crisis and have only provisioned around 50% of the losses
  • The European Central Bank (ECB) is by far the biggest holder of European bonds and has a balance sheet of €4.5 trillion or some 45% of the GDP of the Eurozone
  • 18 of the 28 countries that are part of the European Union have seen house prices fall between 2008 and 2017
  • Greece has been the worst affected country, with its stock market down 85% since 2007, GDP per capita down 22% since 2007, house prices down 43% since 2008 and banks in Greece currently have a non-performing loan ratio of 42%
  • Eurozone Debt as % of GDP is gradually falling but is still historically high
  • Since the financial crisis of 2008, economic uncertainty has seen falling fertility rates for the European Union with population now set to fall over the coming decades

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