The Council and Parliament found a provisional agreement on parts of the anti-money laundering package that aims to protect EU citizens and the EU’s financial system against money laundering and terrorist financing.

“This agreement is part and parcel of the EU’s new anti-money laundering system. It will improve the way national systems against money laundering and terrorist financing are organised and work together. This will ensure that fraudsters, organised crime and terrorists will have no space left for legitimising their proceeds through the financial system.”
Vincent Van Peteghem Belgian Minister of Finance

With the new package, all rules applying to the private sector will be transferred to a new regulation, while the directive will deal with the organisation of institutional AML/CFT systems at national level in the member states.
The provisional agreement on an anti-money laundering regulation will, for the first time, exhaustively harmonise rules throughout the EU, closing possible loopholes used by criminals to launder illicit proceeds or finance terrorist activities through the financial system.
The agreement on the directive will improve the organisation of national anti-money laundering systems.
Anti-money laundering regulation
Obliged entities
Obliged entities, such as financial institutions, banks, real estate agencies, asset management services, casinos, merchants – play a central role as gatekeepers in the anti-money laundering and countering the financing of terrorism (AML/CTF) framework as they have a privileged position to detect suspicious activities.
The provisional agreement expands the list of obliged entities to new bodies. The new rules will cover most of the crypto sector, forcing all crypto-asset service providers (CASPs) to conduct due diligence on their customers. This means that they will have to verify facts and information about their customers, as well as report suspicious activity.
According to the agreement, CASPs will need to apply customer due diligence measures when carrying out transactions amounting to €1000 or more. It adds measures to mitigate risks in relation to transactions with self-hosted wallets.
Other sectors concerned by customer due diligence and reporting obligations will be traders of luxury goods such as precious metals, precious stones, jewellers, horologists and goldsmiths. Traders of luxury cars, airplanes and yachts as well as cultural goods (like artworks) will also become obliged entities.
The provisional agreement recognises that the football sector represents a high risk and expands the list of obliged entities to professional football clubs and agents. However, as the sector and its risk is subject to wide variations, member states will have the flexibility to remove them from the list if they represent a low risk. The rules after a longer transition period, kicking in 5 years after entry into force, as opposed to 3 years for the other obliged entities.
Enhanced due diligence
The Council and Parliament also introduced specific enhanced due diligence measures for cross-border correspondent relationships for crypto-asset service providers.
The Council and Parliament agreed that credit and financial institutions will undertake enhanced due diligence measures when business relationships with very wealthy (high net-worth) individuals involve the handling of a large amount of assets. The failure to do so will be considered an aggravating factor in the sanctioning regime.
Cash payments
An EU-wide maximum limit of €10.000 is set for cash payments, which will make it harder for criminals to launder dirty money. Member states will have the flexibility to impose a lower maximum limit if they wish.
In addition, according to the provisional agreement, obliged entities will need to identify and verify the identity of a person who carries out an occasional transaction in cash between €3.000 and €10.000.
Beneficial ownership
The provisional agreement makes the rules on beneficial ownership more harmonised and transparent. Beneficial ownership refers to persons who actually control or enjoy the benefits of ownership of a legal entity (like a company, foundation or trust), although the title or property is in another name.
The agreement clarifies that beneficial ownership is based on two components – ownership and control – which both need to be analysed to identify all the beneficial owners of that legal entity or across types of entities, including non-EU entities when they do business in the EU or purchase real estate in the EU. The agreement sets the beneficial ownership threshold at 25%.
Related rules applicable to multi-layered ownership and control structures are also clarified to make sure hiding behind multiple layers of ownership of companies won’t work anymore. In parallel, data protection and record retention provisions are clarified to make the work of the competent authorities easier and faster.
The agreement provides for the registration of the beneficial ownership of all foreign entities that own real estate with retroactivity until 1 January 2014.
High-risk third countries
Obliged entities will be required to apply enhanced due diligence measures to occasional transactions and business relationships involving high-risk third countries whose shortcomings in their national anti-money laundering and counter-terrorism regimes make them represent a threat to the integrity of the EU’s internal market.
The Commission will make an assessment of the risk, based on the financial action task force listings (FATF, the international standard setter in anti-money laundering). Furthermore, the high level of risk will justify the application of additional specific EU or national countermeasures, whether at the level of obliged entities or by the member states.
Anti-money laundering directive
Beneficial ownership registers
According to the provisional agreement the information submitted to the central register will need to be verified. Entities or arrangements that are associated with persons or entities subject to targeted financial sanctions will need to be flagged.
The directive grants the entities in charge of the registers the power to carry out inspections at the premises of legal entities registered, in case of doubts regarding the accuracy of the information in their possession.
The agreement also establishes that in addition to supervisory and public authorities and obliged entities, among others, persons of the public with legitimate interest, including press and civil society, may access the registers.
In order to facilitate investigations into criminal schemes involving real estate, the text ensures that real estate registers are accessible to competent authorities through a single access point, making available for example information on price, property type, history and encumbrances like mortgages, judicial restrictions and property rights.
The responsibilities of FIUs
Each member state has already established financial intelligence unit (FIU) to prevent, report and combat money laundering and terrorist financing. These FIUs are responsible for receiving and analysing information relevant to money laundering and terrorist financing, notably in the form of reports from obliged entities.
According to the agreement, FIUs will have immediate and direct access to financial, administrative and law enforcement information, including tax information, information on funds and other assets frozen pursuant to targeted financial sanctions, information on transfers of funds and crypto-transfers, national motor vehicles, aircraft and watercraft registers, customs data, and national weapons and arms registers, among others.
FIUs continue to disseminate information to competent authorities tasked with combatting money laundering and terrorist financing, including authorities with an investigative, prosecutorial or judicial role. In cross border cases, FIUs will cooperate more closely with their counterparts in the member state concerned with the suspicious report. The FIU.net system will be upgraded to enable the fast dissemination of cross-border reports.
According to the provisional agreement, applying fundamental rights is confirmed as an integral part of the FIU’s work and taken into account when making decisions.
The agreement sets out a firm framework for FIUs to suspend or withhold consent to a transaction, in order to perform its analyses, assess the suspicion and disseminate the results to the relevant authorities to allow for the adoption of appropriate measures.
Supervisors
According to the agreement, each member state will ensure that all obliged entities established in its territory are subject to adequate and effective supervision by one or more supervisors. Supervisors will apply a risk-based approach.
Supervisors will report to the FIUs instances of suspicions. Similar to provisions in the AMLA regulation, new supervisory measures for the non-financial sector, so-called supervisory colleges, are introduced. AMLA will develop draft regulatory technical standards defining the general conditions that enable the proper functioning of AML/CFT supervisory colleges.
Risk assessment
According to the provisional agreement, both EU and national risks assessments remain an important tool. The Commission will conduct an assessment at EU level of the risks of money laundering and terrorist financing and draw up recommendations to member states on measures that they should follow. Member states will also carry out risk assessments at national level and commit to effectively mitigating the risks identified in the national risk assessment.
Next steps
The texts will now be finalised and presented to member states’ representatives in the Committee of permanent representatives and the European Parliament for approval. If approved, the Council and the Parliament will have to formally adopt the texts before they are published in the EU’s Official Journal and enter into force.
Background
On 20 July 2021, the Commission presented its package of legislative proposals to strengthen the EU’s rules on anti-money laundering and countering the financing of terrorism (AML/CFT). This package consists of:

a regulation establishing a new EU anti-money laundering authority (AMLA) which will have powers to impose sanctions and penalties
a regulation recasting the regulation on transfers of funds which aims to make transfers of crypto-assets more transparent and fully traceable
a regulation on anti-money-laundering requirements for the private sector
a directive on anti-money-laundering mechanisms

Commission proposal on AMLA
Commission proposal on the AML regulation
Commission proposal on the AML directive
Anti-money laundering: Council and Parliament agree to create new authority (press release, 13 December 2023)
Anti-money laundering: Provisional agreement reached on transparency of crypto asset transfers (press release, 29 June 2022)
Fight against money laundering and terrorist financing (background information)

 
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Global growth is set to slow further this year, amid the lagged and ongoing effects of tight monetary policy, restrictive financial conditions, and feeble global trade and investment. Downside risks to the outlook include an escalation of the recent conflict in the Middle East and associated commodity market disruptions, financial stress amid elevated debt and high borrowing costs, persistent inflation, weaker-than-expected activity in China, trade fragmentation, and climate-related disasters. Against this backdrop, policy makers around the world face enormous challenges. Even though investment in emerging market and developing economies (EMDEs) is likely to remain subdued, lessons learned from episodes of investment growth acceleration over the past seven decades highlight the importance of macroeconomic and structural policy actions and their interaction with well-functioning institutions in boosting investment and thus long-term growth prospects. Commodity-exporting EMDEs face a unique set of challenges amid fiscal policy procyclicality and volatility. This underscores the need for a properly designed fiscal framework that, combined with a strong institutional environment, can help build buffers during commodity price booms that can be drawn upon during subsequent slumps in prices. At the global level, cooperation needs to be strengthened to provide debt relief, facilitate trade integration, tackle climate change, and alleviate food insecurity.
Global outlook. Global growth is expected to slow to 2.4 percent in 2024—the third consecutive year of deceleration—reflecting the lagged and ongoing effects of tight monetary policies to rein in decades-high inflation, restrictive credit conditions, and anemic global trade and investment. Near-term prospects are diverging, with subdued growth in major economies alongside improving conditions in emerging market and developing economies (EMDEs) with solid fundamentals. Meanwhile, the outlook for EMDEs with pronounced vulnerabilities remains precarious amid elevated debt and financing costs. Downside risks to the outlook predominate. The recent conflict in the Middle East, coming on top of the Russian Federation’s invasion of Ukraine, has heightened geopolitical risks. Conflict escalation could lead to surging energy prices, with broader implications for global activity and inflation. Other risks include financial stress related to elevated real interest rates, persistent inflation, weaker-than-expected growth in China, further trade fragmentation, and climate change-related disasters. Against this backdrop, policy makers face enormous challenges and difficult trade-offs. International cooperation needs to be strengthened to provide debt relief, especially for the poorest countries; tackle climate change and foster the energy transition; facilitate trade flows; and alleviate food insecurity. EMDE central banks need to ensure that inflation expectations remain well anchored and that financial systems are resilient. Elevated public debt and borrowing costs limit fiscal space and pose significant challenges to EMDEs—particularly those with weak credit ratings—seeking to improve fiscal sustainability while meeting investment needs. Commodity exporters face the additional challenge of coping with commodity price fluctuations, underscoring the need for strong policy frameworks. To boost longer-term growth, structural reforms are needed to accelerate investment, improve productivity growth, and close gender gaps in labor markets.
Regional prospects. Although some improvements in growth are expected in most EMDE regions, the overall outlook remains subdued. Growth this year is projected to soften in East Asia and Pacific—mainly on account of slower growth in China—Europe and Central Asia, and South Asia. Only a slight improvement in growth, from a weak base in 2023, is expected for Latin America and the Caribbean. More marked pickups in growth are projected for the Middle East and North Africa, supported by increased oil xviii production, and Sub-Saharan Africa, reflecting recovery from recent weakness. In 2025, growth is projected to strengthen in most regions as the global recovery firms.
The Magic of Investment Accelerations. Investment powers economic growth, helps drive down poverty, and will be indispensable for tackling climate change and achieving other key development goals in emerging market and developing economies (EMDEs). Without further policy action, investment growth in these economies is likely to remain tepid for the remainder of this decade. But it can be boosted. This chapter offers the first comprehensive analysis of investment accelerations—periods in which there is a sustained increase in investment growth to a relatively rapid rate—in EMDEs. During these episodes over the past seven decades, investment growth typically jumped to more than 10 percent per year, which is more than three times the growth rate in other (non-acceleration) years. Countries that had investment accelerations often reaped an economic windfall: output growth increased by about 2 percentage points and productivity growth increased by 1.3 percentage points per year. Other benefits also materialized in the majority of such episodes: inflation fell, fiscal and external balances improved, and the national poverty rate declined. Most accelerations followed, or were accompanied by, policy shifts intended to improve macroeconomic stability, structural reforms, or both. These policy actions were particularly conducive to sparking investment accelerations when combined with wellfunctioning institutions. A benign external environment also played a crucial role in catalyzing investment accelerations in many cases.
Fiscal Policy in Commodity Exporters: An Enduring Challenge. Fiscal policy has been about 30 percent more procyclical and about 40 percent more volatile in commodity-exporting emerging market and developing economies (EMDEs) than in other EMDEs. Both procyclicality and volatility of fiscal policy—which share some underlying drivers—hurt economic growth because they amplify business cycles. Structural policies, including exchange rate flexibility and the easing of restrictions on international financial transactions, can help reduce both fiscal procyclicality and fiscal volatility. By adopting average advanced-economy policies regarding exchange rate regimes, restrictions on crossborder financial flows, and the use of fiscal rules, commodity-exporting EMDEs can increase their GDP per capita growth by about 1 percentage point every four to five years through the reduction in fiscal policy volatility. Such policies should be supported by sustainable, welldesigned, and stability-oriented fiscal institutions that can help build buffers during commodity price booms to prepare for any subsequent slump in prices. A strong commitment to fiscal discipline is critical for these institutions to be effective in achieving their objectives.
 
The full report can be downloaded here
 
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AI will affect almost 40 percent of jobs around the world, replacing some and complementing others. We need a careful balance of policies to tap its potential
Kristalina Georgieva

We are on the brink of a technological revolution that could jumpstart productivity, boost global growth and raise incomes around the world. Yet it could also replace jobs and deepen inequality.
The rapid advance of artificial intelligence has captivated the world, causing both excitement and alarm, and raising important questions about its potential impact on the global economy. The net effect is difficult to foresee, as AI will ripple through economies in complex ways. What we can say with some confidence is that we will need to come up with a set of policies to safely leverage the vast potential of AI for the benefit of humanity.
Reshaping the Nature of Work
In a new analysis, IMF staff examine the potential impact of AI on the global labor market. Many studies have predicted the likelihood that jobs will be replaced by AI. Yet we know that in many cases AI is likely to complement human work. The IMF analysis captures both these forces.
The findings are striking: almost 40 percent of global employment is exposed to AI. Historically, automation and information technology have tended to affect routine tasks, but one of the things that sets AI apart is its ability to impact high-skilled jobs. As a result, advanced economies face greater risks from AI—but also more opportunities to leverage its benefits—compared with emerging market and developing economies.
In advanced economies, about 60 percent of jobs may be impacted by AI. Roughly half the exposed jobs may benefit from AI integration, enhancing productivity. For the other half, AI applications may execute key tasks currently performed by humans, which could lower labor demand, leading to lower wages and reduced hiring. In the most extreme cases, some of these jobs may disappear.
In emerging markets and low-income countries, by contrast, AI exposure is expected to be 40 percent and 26 percent, respectively. These findings suggest emerging market and developing economies face fewer immediate disruptions from AI. At the same time, many of these countries don’t have the infrastructure or skilled workforces to harness the benefits of AI, raising the risk that over time the technology could worsen inequality among nations.

AI could also affect income and wealth inequality within countries. We may see polarization within income brackets, with workers who can harness AI seeing an increase in their productivity and wages—and those who cannot falling behind. Research shows that AI can help less experienced workers enhance their productivity more quickly. Younger workers may find it easier to exploit opportunities, while older workers could struggle to adapt.
The effect on labor income will largely depend on the extent to which AI will complement high-income workers. If AI significantly complements higher-income workers, it may lead to a disproportionate increase in their labor income. Moreover, gains in productivity from firms that adopt AI will likely boost capital returns, which may also favor high earners. Both of these phenomena could exacerbate inequality.
In most scenarios, AI will likely worsen overall inequality, a troubling trend that policymakers must proactively address to prevent the technology from further stoking social tensions. It is crucial for countries to establish comprehensive social safety nets and offer retraining programs for vulnerable workers. In doing so, we can make the AI transition more inclusive, protecting livelihoods and curbing inequality.
An Inclusive AI-Driven World
AI is being integrated into businesses around the world at remarkable speed, underscoring the need for policymakers to act.
To help countries craft the right policies, the IMF has developed an AI Preparedness Index that measures readiness in areas such as digital infrastructure, human-capital and labor-market policies, innovation and economic integration, and regulation and ethics.
The human-capital and labor-market policies component, for example, evaluates elements such as years of schooling and job-market mobility, as well as the proportion of the population covered by social safety nets. The regulation and ethics component assesses the adaptability to digital business models of a country’s legal framework and the presence of strong governance for effective enforcement.
Using the index, IMF staff assessed the readiness of 125 countries. The findings reveal that wealthier economies, including advanced and some emerging market economies, tend to be better equipped for AI adoption than low-income countries, though there is considerable variation across countries. Singapore, the United States and Denmark posted the highest scores on the index, based on their strong results in all four categories tracked.

Guided by the insights from the AI Preparedness Index, advanced economies should prioritize AI innovation and integration while developing robust regulatory frameworks. This approach will cultivate a safe and responsible AI environment, helping maintain public trust. For emerging market and developing economies, the priority should be laying a strong foundation through investments in digital infrastructure and a digitally competent workforce.
The AI era is upon us, and it is still within our power to ensure it brings prosperity for all.
 
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Households’ financial investment increased at annual rate of 1.9% in third quarter of 2023, after 2.1% in previous quarter
Non-financial corporations’ financing grew at broadly unchanged rate of 0.7%
Non-financial corporations’ gross operating surplus increased at annual rate of 2.2%, after 5.9% in previous quarter

Chart 1
Household financing and financial and non-financial investment

(Annual growth rates)

Sources: ECB and Eurostat.

Chart 2
Data for household financing and financial and non-financial investmentNFC gross-operating surplus, non-financial investment and financing

(annual growth rates)

Source: ECB and Eurostat.

Data for NFC gross-operating surplus, non-financial investment and financing
Households
Household gross disposable income increased in the third quarter of 2023 at a lower annual rate of 6.4% (after 8.3% in the second quarter), as the main components grew at lower rates: compensation of employees increased at a rate of 6.6% (after 7.0%), and gross operating surplus and mixed income of the self-employed grew at a rate of 6.2% (after 7.4%). Household consumption expenditure increased at a lower rate of 5.0% (after 6.9%).
Household gross saving rate increased to 14.1% in the third quarter of 2023, compared with 13.9% in the previous quarter.
Household gross non-financial investment (which refers mainly to housing) grew at a lower annual rate of 0.9% in the third quarter of 2023, after 1.4% in the previous quarter. Loans to households, the main component of household financing, increased at a lower rate of 1.0% (after 1.8%).
Household financial investment grew at a lower annual rate of 1.9% in the third quarter of 2023, after 2.1% in the previous quarter. Among its components, currency and deposits increased at a lower rate of 0.5% (after 1.6%), while investment in debt securities increased at a higher rate of 61.6% (after 50.0%). Investment in shares and other equity increased at an unchanged rate of 1.0%. Life insurance investment ceased to grow (0% after 0.6%), while investment in pension schemes grew at a broadly unchanged rate of 2.4%.
Household net worth increased at an annual rate of 2.3% in the second quarter of 2023, after 3.1% in the previous quarter. The deceleration was mainly due to lower valuation gains on non-financial assets. Housing wealth, the main component of non-financial assets, grew at a lower rate of 0.9% (after 2.3%). The household debt-to-income ratio decreased to 88.1% in the third quarter of 2023 from 94.3% in the third quarter of 2022.
Non-financial corporations
Net value added by NFCs increased at a lower annual rate of 5.8% in the third quarter of 2023, after 7.6% in the previous quarter. Gross operating surplus grew at a lower rate of 2.2% after 5.9%, while net property income (defined in this context as property income receivable minus interest and rent payable) increased at a higher rate (31.5% after 0.7%). As a result, gross entrepreneurial income (broadly equivalent to cash flow) increased at a higher rate of 5.4% (after 4.5%).[1]
NFCs’ gross non-financial investment decreased at an annual rate of -9.8% (after increasing by 19.4%) partly due to a strong decrease in other non-financial investments such as inventories.[2] NFCs’ financial investment grew at a lower annual rate of 1.5%, compared with 1.7% in the previous quarter. Among its components, deposits decreased at a more negative rate (-2.3% after -2.0%). Loans granted grew at a lower rate of 2.1% (after 2.9%), while investment in shares and other equity grew at a higher rate of 1.5% (after 0.7%).
Financing of NFCs increased at a broadly unchanged rate of 0.7%, reflecting mainly a lower growth rate of financing via loans (0.9% after 2.5%)[3] and a higher growth rate of equity financing (0.3%, after -0.2%).
NFC’s debt-to-GDP ratio (consolidated measure) decreased to 68.0% in the third quarter of 2023, from 73.7% in the same quarter of the previous year; the non-consolidated, wider debt measure decreased to 126.5% from 136.1%.
For queries, please use the Statistical information request form.
Notes

This statistical release incorporates revisions to the data since the first quarter of 2020.
The annual growth rate of non-financial transactions and of outstanding assets and liabilities (stocks) is calculated as the percentage change between the value for a given quarter and that value recorded four quarters earlier. The annual growth rates used for financial transactions refer to the total value of transactions during the year in relation to the outstanding stock a year before.
The euro area and national financial accounts data of non-financial corporations and households are available in an interactive dashboard.
Hyperlinks in the main body of the statistical release are dynamic. The data they lead to may therefore change with subsequent data releases as a result of revisions. Figures shown in annex tables are a snapshot of the data as at the time of the current release.
The ECB published on 8 January 2024 for the first experimental Distributional Wealth Accounts (DWA), which provides additional breakdowns for the household sector. The release of results for 2023Q3 is planned for end-February 2024.

Gross entrepreneurial income is the sum of gross operating surplus and property income receivable minus interest and rent payable.
Gross non-financial investment is the sum of gross fixed capital formation, changes of inventories, and the net acquisition of valuables and non-produced assets (e.g. licences).
Loan financing comprises loans granted by all euro area sectors (in particular MFIs, non-MFI financial institutions and loans from other non-financial corporations) and by creditors that are not resident in the euro area.

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Member states’ EU ambassadors today agreed on the Council’s partial negotiating mandate on the proposed Strategic Technologies for Europe Platform (STEP).
The platform will support investments in critical technologies in the fields of digital and deep tech, clean tech and biotech in the EU. It will reduce the EU’s strategic dependencies and enhance its long-term competitiveness.
The Council’s negotiating mandate is partial, because its position on additional financial support for STEP will depend on the final outcome of the horizontal negotiations on the mid-term revision of the multiannual financial framework for 2021-2027.
Main elements of the Council’s mandate
In its mandate, the Council clarifies the objectives and scope of STEP, and confirms its support for the proposed sovereignty seal and sovereignty portal for STEP-related investments.
To facilitate the use of available funding and create synergies among funding instruments for investments in critical technologies, the Council supports identifying resources which would support STEP objectives within a range of existing EU programmes and funds, including the InvestEU, Horizon Europe, European Defence Fund, Innovation Fund, Recovery and Resilience Facility and cohesion policy funds.
The Council also agrees to the Commission proposal to apply a 100 % co-financing rate and a 30 % pre-financing for STEP priorities under the 2021–2027 programming period for cohesion policy funds, as well as to the proposal to enable investments in large enterprises.
Considering the continued budgetary pressure in member states, the Council has also agreed to apply retroactively a 100 % co-financing rate to the 2014-2020 cohesion programmes in the final accounting year, whilst extending the deadline for submitting payment applications by 12 months.
In addition, the Council has included in its mandate some other provisions to reduce administrative burden for the member states and facilitate the reprogramming of funds towards STEP objectives.
Next steps
The partial mandate agreed today will serve as a basis for negotiations on STEP with the European Parliament. Once an agreement with the Parliament is reached, the regulation will need to be formally adopted by the Council and the European Parliament.
Background
The Commission proposed the creation of a Strategic Technologies for Europe Platform on 20 June 2023 as part of its package of proposals related to the mid-term revision of the multiannual financial framework 2021-2027.
Today the Council also agreed a partial negotiating mandate on the Ukraine Facility.
 
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Cheaper cross-border payment services would benefit people and economies worldwide
Kieran Murphy
January 3, 2024

Faster, cheaper, and more transparent cross-border payment services have the potential to improve many lives by supporting economic growth, international trade, global development, and financial inclusion. The Group of Twenty has prioritized such progress.
That’s because the financial links between countries, particularly between emerging market and developing economies, face several challenges that must be addressed, including high costs and inconsistent charges depending on the countries being linked, as we explore in a new paper prepared as part of our payments work with the G20.
The global average cost of sending $200 from one country to another is about $12.50 in the first quarter of 2023, or 6.25 percent, according to the World Bank’s Remittance Prices Worldwide database. The G20 have set a target, reaffirming the United Nations Sustainable Development Goal, of a global average cost for sending a $200 remittance of no more than 3 percent by 2030, with no corridors higher than 5 percent.
However, as the Chart of the Week shows, some costs are many times higher than this target. Fees exceed 50 percent for funds sent from Türkiye to neighboring Bulgaria, for example. Costs are notably high for sending money in sub-Saharan Africa, where Tanzanian remittances to Uganda and Kenya incur fees over 30 percent. In South Africa, it’s particularly costly to send across its borders with Botswana, Eswatini, and Lesotho.

High fees, especially bank-to-bank transfers, are a main driver of the high costs for corridors between emerging market and developing economies. Such bank fees tend to be much lower for transfers originating in advanced economies where foreign-exchange margins can be 50 percent or more of the cost in some corridors.
The Financial Stability Board acknowledged in a recent report that progress under the roadmap to enhance cross-border payments will be needed to meet the targets set across the wholesale, retail, and remittances market segments.
To help reduce costs and address challenges with cross-border payments, international organizations such as the IMF and World Bank will need to play a key role by sharing best practices through technical assistance for member countries. Technical assistance can help because, while the targets are set at a global level, they require coordinated and customized assistance at the country level to address specific challenges.
The IMF shares its knowledge with government institutions such as finance ministries and central banks through hands-on advice, training, and peer-to-peer learning. Our technical assistance is part of capacity development, which is a core mandate that accounts for nearly a third of the IMF budget.
We will focus in coming years on improving access to payment systems, extending and aligning operating hours, interlinking of payment systems, combating money laundering and the financing of terrorism, and harmonizing payment systems by adopting the global and open standard for exchanging financial information, known as ISO 20022. We will also collaborate with the World Bank at the country and project level.

 
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NEW YORK—The Federal Reserve Bank of New York’s Center for Microeconomic Data today released the December 2023 Survey of Consumer Expectations, which shows that inflation expectations declined at the short-, medium- and longer-term horizons. Notably, inflation expectations at the short-term horizon reached the lowest level recorded since January 2021. Earnings growth and spending growth expectations also decreased slightly to their lowest recorded levels since 2021, while expectations about credit access and households’ financial situation turned less pessimistic.

The main findings from the December 2023 Survey are:
Inflation

Median inflation expectations declined at all horizons, falling to 3.0% from 3.4% at the one-year ahead horizon, to 2.6% from 3.0% at the three-year ahead horizon, and to 2.5% from 2.7% at the five-year ahead horizon. Median inflation expectations at the one-year ahead horizon reached the lowest level recorded since January 2021. The survey’s measure of disagreement across respondents (the difference between the 75th and 25th percentile of inflation expectations) increased at the one-year ahead horizon, and decreased at the three-year and five-year ahead horizons.
Median inflation uncertainty—or the uncertainty expressed regarding future inflation outcomes—remained essentially unchanged at all three horizons.
Median home price growth expectations remained unchanged at 3.0%, remaining well above the series 12-month trailing average of 2.4%.
Median year-ahead expected price changes increased by 0.5 percentage point for the cost of a college education to 6.3%, decreased by 0.3 percentage point for food to 5.0%, decreased by 0.7 percentage point for rent to 7.3%, and remained flat for gas at 4.5% and the cost of medical care at 9.1%.

Labor Market

Median one-year-ahead expected earnings growth decreased by 0.2 percentage point to 2.5%, the lowest level since April 2021. The decline was driven by respondents with at most a high school diploma.
Mean unemployment expectations—or the mean probability that the U.S. unemployment rate will be higher one year from now—decreased by 1.4 percentage points to 37.0% , remaining below the series 12-month trailing average of 39.5%.

The mean perceived probability of losing one’s job in the next 12 months decreased slightly by 0.2 percentage points to 13.4%, remaining above the series 12-month trailing average of 12.3%. The mean probability of leaving one’s job voluntarily in the next 12 months increased by 0.8 percentage point to 20.4%.
The mean perceived probability of finding a job (if one’s current job was lost) increased marginally to 55.9% from 55.2% in November.

Household Finance

Median expected growth in household income decreased by 0.1 percentage point to 3.0%, remaining above the February 2020 pre-pandemic level of 2.7% . The series has been moving within a narrow range of 2.9% to 3.3% since January 2023.
Median household spending growth expectations declined by 0.2 percentage point to 5.0%, reaching the lowest level recorded since September 2021. Still, the series remains well above its February 2020 pre-pandemic level of 3.1%.
Perceptions of credit access compared to a year ago were largely unchanged. Expectations about credit access a year from now instead improved with a larger share of respondents expecting looser credit conditions and a smaller share of respondents expecting tighter credit conditions a year from now.
The average perceived probability of missing a minimum debt payment over the next three months increased by 0.6 percentage point to 12.4% , a level above the series 12-month trailing average of 11.5% but comparable to those prevailing just before the pandemic.
The median expected year-ahead change in taxes at current income level remained unchanged at 4.1%.
Median year-ahead expected growth in government debt decreased to 9.4% from 10% in November.
The mean perceived probability that the average interest rate on saving accounts will be higher in 12 months decreased by 3.6 percentage points to 25.9%, its lowest level since November 2021.
Perceptions about households’ current financial situations improved with fewer respondents reporting being worse off than a year ago. Year-ahead expectations also improved with a smaller share of respondents expecting to be worse off and a larger share of respondents expecting to be better off a year from now.
The mean perceived probability that U.S. stock prices will be higher 12 months from now increased by 0.2 percentage point to 36.7%.

About the Survey of Consumer Expectations (SCE)
The SCE contains information about how consumers expect overall inflation and prices for food, gas, housing, and education to behave. It also provides insight into Americans’ views about job prospects and earnings growth and their expectations about future spending and access to credit. The SCE also provides measures of uncertainty regarding consumers’ outlooks. Expectations are also available by age, geography, income, education, and numeracy.
The SCE is a nationally representative, internet-based survey of a rotating panel of approximately 1,300 household heads. Respondents participate in the panel for up to 12 months, with a roughly equal number rotating in and out of the panel each month. Unlike comparable surveys based on repeated cross-sections with a different set of respondents in each wave, this panel allows us to observe the changes in expectations and behavior of the same individuals over time. For further information on the SCE, please refer to an overview of the survey methodology here, the interactive chart guide, and the survey questionnaire.

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Inflation in the eastern euro area: reasons and risks

10 January 2024
By Matteo Falagiarda

Within the euro area, countries in central and eastern Europe have recently experienced the highest inflation rates. But why, exactly? The ECB Blog looks at the reasons for these higher prices and highlights the resulting risks and vulnerabilities.

Since 2021 inflation in euro area countries in central and eastern Europe (EACEE) has significantly outpaced that of the euro area as a whole.[1] The differentials have narrowed in recent months but remain high for core inflation, which excludes energy and food prices (Chart 1). If large cumulated inflation differentials persist in a monetary union like the euro area, they can lead to competitiveness losses. This, in turn, could stoke country-specific macroeconomic vulnerabilities, such as deteriorating current accounts, higher external debt, downward demand pressures and rising unemployment. So understanding the sources of high inflation is important to deal with the associated risks.

Chart 1
Inflation differentials in EACEE countries vis-à-vis the euro area average

(percentage points)

Sources: Eurostat and author’s calculations.
Notes: Averages across EACEE countries are unweighted averages. Core inflation refers to HICP excluding energy and food. The latest observations are for November 2023.

Strong impact of global shocks
Part of the reason for the relatively high initial inflation in EACEE countries is their vulnerability to recent adverse global shocks: disruptions in global supply chains, supply-demand imbalances after the COVID-19 pandemic as well as the ramifications of the Russian invasion of Ukraine. These shocks hit all European economies. But their impact was stronger in EACEE countries, in part due to certain structural features of these economies (Chart 2).
First, EACEE countries typically display a higher energy intensity of production than the euro area average, mainly owing to larger energy-intensive sectors (i.e. manufacturing and transport) and fewer energy-efficient appliances and buildings. Second, the share of energy and food in their consumption baskets is higher than the euro area average, which we often see in economies with lower average incomes. Third, most of these economies depended heavily on Russian energy prior to the outbreak of the war, making them more vulnerable to energy supply disruptions. Fourth, these countries are deeply integrated in global value chains (GVC), implying a larger impact of global supply bottlenecks.[2]

Chart 2
Higher vulnerability of EACEE countries to recent global shocks

(left panel: kilogrammes of oil equivalent per thousand euro in PPS; middle and right panels: percentages)

Sources: Eurostat, OECD (TiVA) and author’s calculations.
Notes: Averages across EACEE countries are unweighted averages. Euro area figures for energy intensity and import dependency are calculated using country-weights based on nominal GDP. Energy intensity measures the energy needs of an economy and is calculated as units of energy per unit of GDP. Data on energy intensity refer to 2021. Russian oil refers to Russian oil and petroleum products. Russian gas refers to Russian natural gas. Data on import dependency on Russian oil and gas refer to 2020. Backward GVC participation is the foreign value added embedded in domestic exports. Data on backward GVC participation refer to 2020. Data on weights in the HICP basket refer to 2022.

Persistent domestic price pressures
While external shocks were an important driver of initial inflation differentials, domestic factors also play a prominent role (Chart 3). How much pipeline pressures (those emerging at the early stages of the production and distribution chain) ultimately pass through to consumer goods partly depends on how much firms absorb them by reducing profit margins. While euro area firms have recently expanded unit profits, recouping past real profit losses and building buffers amidst high uncertainty, the unit profit increase was larger in the EACEE region. This has an effect on domestic price pressures. The larger increase in unit profits in EACEE countries possibly reflects the stronger pipeline pressures, the more pronounced impact of global supply bottlenecks, or a lower degree of competition among firms, especially in the smaller countries of the region.

Domestic factors have played an increasingly prominent role in supporting inflation.

Labour market conditions have also remained tight in all EACEE countries, with historically low unemployment rates and persistent labour shortages resulting in robust wage growth in excess of productivity growth. This exerted upward pressure on inflation, albeit with limited risk of a price-wage spiral. Shortages in labour supply are apparent from less favourable developments in the labour force and working age population in these countries compared to the euro area overall. These trends are due to migration outflows of highly skilled young people and a rapid population ageing.
Stronger domestic price pressures in EACEE countries may have also reflected that higher inflation temporarily reduced real interest rates. As the pick-up in inflation started earlier and was stronger than in the rest of the euro area, borrowers in these countries have temporarily experienced a decline in the real value of their outstanding debt. In addition, to the extent that a continuation of relatively high inflation has been expected, ex-ante real financing costs could have been relatively low. Both factors, combined with resilient labour markets, may have contributed to stronger (albeit now moderating) domestic demand and credit dynamics.[3]

Chart 3
Selected indicators on domestic factors

(percentage changes from Q4 2019 to Q3 2023; unemployment rate: average percentages over the period January 2020 – September 2023)

Sources: Eurostat, ECB and author’s calculations.
Notes: Averages across EACEE countries are unweighted averages. Unit labour costs are defined as compensation per employee divided by labour productivity. Unit profits are defined as gross operating surplus divided by real GDP. Loans to firms and households are notional stocks adjusted for sales and securitisation. Labour force is the active population between 15 and 64. Working-age population refers to the number of persons aged between 15 and 64.

Analysis confirms that the bulk of the initial increase in inflation in EACEE countries reflected global external shocks (Chart 4). The estimates indicate that external shocks played a strong role in boosting inflation above the euro area aggregate. At the same time, the model shows that domestic price pressures have increasingly contributed to the widening of inflation differentials vis-à-vis the euro area. While external sources of inflation eased since the end of 2022, domestic factors are estimated to have continued to exert significant upward pressures on inflation in the most recent period as well.

Chart 4
Decomposition of headline inflation

(left-hand and middle panels: cumulated percentage point contributions to headline inflation since December 2019; right-hand panel: cumulated contributions to changes in the headline HICP index from December 2019 to September 2023)

Sources: Author’s calculations.
Notes: The left-hand and middle panels show the cumulated percentage point contribution of different types of shocks to explain the evolution in headline inflation since December 2019. The right-hand panel shows the cumulated contribution of different types of shocks to explain the evolution in the headline HICP index since December 2019. Global factors include an energy price shock and a global supply bottlenecks shock; other factors include a domestic supply shock, a monetary policy shock and an unidentified shock. The contributions are estimated in a Bayesian vector autoregressive model. More details on the model can be obtained upon request from the author.

Conclusions
The recent drop in energy prices and the unwinding of global supply bottlenecks have already begun to narrow headline inflation differentials of EACEE countries vis-à-vis the euro area. However, domestic price pressures, in part resulting from a stronger pass-through of external shocks amidst tight labour markets, are keeping underlying inflation in these countries persistently higher than the euro area average. At the same time, high cumulated inflation increased the relative price level, eroding price competitiveness, as reflected by the strong appreciation of the real effective exchange rates, implying that these countries might be confronted with rising external vulnerabilities and the related consequences.
These developments point to the need for policy action. As the single monetary policy cannot address such country specific developments, national fiscal and structural policies are best suited to mitigating potential risks. The precise policy response will depend on country-specific features. In the near term, a tighter fiscal policy stance could help to dampen inflationary pressures stemming from domestic demand. In addition, structural policies could support the competitiveness of these economies, their potential growth and resilience to future shocks, for example by fostering investment in innovation and human capital as well as strengthening adjustment flexibility.
The views expressed in each blog entry are those of the author(s) and do not necessarily represent the views of the European Central Bank and the Eurosystem.
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The EACEE countries in this blog post comprise Estonia (EE), Latvia (LV), Lithuania (LT), Slovakia (SK), Slovenia (SI) and Croatia (HR). Notice that during the inflation surge in 2021-2022, Croatia had not yet adopted the euro. While EACEE economies all have their country-specific features, there are also some common characteristics. They are all small open economies that adopted the euro during the past 15 years. While highly integrated with the rest of the euro area, these countries were also potentially more exposed to the shocks stemming from the Russian invasion of Ukraine given their geographical proximity. In the last two decades, they have been undertaking a process of gradual convergence, but their income per capita still lags that of the euro area average. An adverse demographic outlook and subdued productivity growth represent an obstacle for a fast catching-up of these countries. On the positive side, these countries typically display relatively low public and private debt levels compared with other euro area countries.
Moreover, in the Baltics changes in commodity prices tend to transmit quickly to consumer prices on account of particularly flexible price setting.
In some EACEE countries, the ample liquidity in the banking sector has also temporarily limited the transmission of tighter ECB’s monetary policy.

 
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New experimental statistics on distribution of household wealth in euro area provide quarterly information to policy makers, in line with national accounts
First new data show that household net wealth in euro area increased by 29% over last five years, with homeowners’ net wealth increasing more than that of non-homeowners
Inequality, as measured for example by share of wealth held by top 5% versus bottom 50%, decreased slightly over past five years

The European Central Bank (ECB) has today published experimental statistics on Distributional Wealth Accounts (DWA) to provide quarterly and timely household distributional information that is consistent with the national accounts. The new data have been developed to support the ECB’s 2021 monetary policy strategy, which aims to include a systematic assessment of the two-way interaction between income and wealth distributions and monetary policy[1]. The release also follows recommendations of the G20 Data Gaps Initiative[2].
The DWA link household-level information from the Household Finance and Consumption Survey (HFCS) to macroeconomic information available in the sector accounts and therefore complement existing household survey data. The data will be compiled every quarter and published five months after the end of each period.
The DWA provide data on net wealth, total assets and liabilities[3] and their components. Households are broken down into the top five deciles of net wealth and the bottom 50% as well as by employment and housing status.
Through these data, it is possible to analyse the effects of, for example, growing housing wealth and the rising value of listed shares on the distribution of household wealth. The DWA results show that the increase in housing wealth in recent years has been more equally distributed than the increase in the value of listed shares (Chart 1).

Chart 1: Housing wealth (left) and listed shares (right), by net wealth decile, euro area

The significant rise in euro area household net wealth observed in national accounts over the past five years (29% or about €13.7 trillion) was accompanied by a slight decrease in inequality, partly because homeowners, who account for more than 60% of the population, benefited from increased housing prices. Their net wealth (per household) increased by 27% over this period. In parallel, the net wealth of non-homeowners, making up 40% of the population, grew by 17%, mainly owing to the rise in deposits observed over this period.
The DWA dataset also includes the Gini coefficient for net wealth, data on median and mean net wealth, the share of net wealth held by the bottom 50%, the top 5% and the top five deciles of households, as well as the debt-to-asset ratio by household net wealth deciles.
The DWA results show that, in the euro area, the share of net wealth held by the top 5% of households of the net wealth distribution dropped slightly between 2016 and the second quarter of 2023, while still exceeding 43%. At the same time, the median net wealth increased by approximately 40% (Chart 2).

Chart 2: Share of net wealth held by top 5% (left) and household median net wealth (right), euro area

Methodological notes

The DWA data and information on the methodology can be accessed via the ECB Data Portal.
DWA results are available from 2009 and combine the aggregated quarterly sector accounts (QSA) with the four available HFCS waves between 2010 and 2021. Results for the quarters after 2021 are estimated using the most recent sector accounts data and the latest available HFCS wave, assuming a stable instrument distribution. As a result, for recent quarters the DWA capture the impact of developments in sector accounts on wealth distribution, and provide an estimate for the distributional effect of price changes for each instrument. Possible further changes due to differences in the investment and financing behaviour of different household groups are not reflected and will be only integrated as subsequent HFCS waves are released.
DWA data are at current prices and are not adjusted for the effect of inflation.
The data will be updated every three months and will reflect any revisions to the QSA. Furthermore, data from 2021 onwards will be revised when the next HFCS wave becomes available.
Experimental data comply with many, but not all, of the quality requirements of official ECB statistics. A sensitivity analysis has been performed on some parameters used in the estimates, however the results may be subject to higher uncertainty compared with other statistics.
Wealth deciles are computed by ranking households of a country according to their net wealth, starting with the poorest ones, and then grouping them into ten consecutive subsets, each representing 10% of the population: D1 is the poorest decile according to net wealth, D2 the second poorest, etc… up to D10 which is the richest decile according to net wealth. Deciles D1 to D5 together form the “bottom 50%”.
The Gini coefficient measures the extent to which the distribution of wealth within a country deviates from a perfectly equal distribution. A coefficient of 0 expresses perfect equality where everyone has the same wealth, while a coefficient of 1 expresses full inequality where only one person has all the wealth.

 See the overview of the ECB’s monetary policy strategy.
Two of the recommendations for G-20 countries relate to developing distributional information on household income, consumption, savings and wealth in line with the national accounts. See recommendations III.8 and III.9 in https://www.imf.org/en/News/Seminars/Conferences/DGI/g20-dgi-recommendations#dgi3 .
Assets include: deposits, debt securities, equity, life insurance, housing wealth and non-financial business wealth. Liabilities mainly comprise loans received.

 
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