inflation projection of narodowy bank polski based on the ... · march 2016 projection data are...

Economic Institute

Warsaw / 11 July 2016

Inflation projection of Narodowy Bank Polski

based on the NECMOD model

Introduction

Changes between rounds

Projection 2016 - 2018

Uncertainty

Outline:

Inflation projection of the NBP based on the NECMOD model 2

1 Changes between projection rounds

2 Projection 2016 - 2018

3 Uncertainty

Outline

Introduction



Uncertainty

Outline:


Changes between projection rounds


July GDP projection compared to March projection

-0.8

-0.6

-0.4

-0.2

0

0.2

0.4

-0.8

-0.6

-0.4

-0.2

0

0.2

0.4

2016 2017 2018

Private consumption Public consumption

Gross capital formation Net exports

GDP

Source: GUS data, NBP calculations

GDP in the first quarter of 2016 lower than expected

(mostly gross fixed capital formation)

New data on contracts singed for the use of funds from the

2014-2020 financial perspective, indicate a lower than

expected influx of capital transfers from the EU in the next

quarters

A rise in uncertainty in the British economy and global

financial markets due to the outcome of the British

referendum on the UK’s exit from the EU

GDP y/y, % 2015 2016 2017 2018

March 2016 3.6 3.8 3.8 3.4

July 2016 3.6 3.2 3.5 3.3


July CPI projection compared to March projection


Lower demand pressure

Weakening of złoty exchange rate

Higher energy prices on global markets

CPI y/y, % 2015 2016 2017 2018

March 2016 -0.9 -0.4 1.3 1.7

July 2016 -0.9 -0.5 1.3 1.5 -0.6

-0.4

-0.2

0.0

0.2

0.4

0.6

-0.6

-0.4

-0.2

0.0

0.2

0.4

0.6

2016 2017 2018

Core inflation Food prices

Energy prices CPI inflation


Changes between projections

-3

-2

-1

0

1

2

3

4

5

-3

-2

-1

0

1

2

3

4

5

13q1 14q1 15q1 16q1 17q1 18q1 18q4

y/y, % 90% 60% 30% March 16 July 16 inflation target


-1

0

1

2

3

4

5

6

7

8

-1

0

1

2

3

4

5

6

7

8

13q1 14q1 15q1 16q1 17q1 18q1 18q4

y/y, % 90% 60% 30% March 16 July16

CPI inflation y/y, % GDP y/y, %

Introduction



Uncertainty

Outline:


Projection 2016-2018

Economic conditions abroad

Consumption demand

Investment

International trade

Inflation


Temporary slowdown in GDP dynamics in the first quarter of 2016

15q4 16q1

GDP (y/y) (%) 4.3 (3.9) 3.0 (3.6)

Domestic demand (y/y) (%) 4,5 (4.2) 4.1 (5.0)

Private consumption (y/y) (%) 3.0 (3.3) 3.2 (3.4)

Public consumption (y/y) (%) 8.7 (4.4) 4.4 (2.7)

Gross fixed capital formation (y/y) (%) 4.4 (4.9) -1.8 (4.2)

Exports (y/y) (%) 8.2 (4.4) 6.9 (3.5)

Imports (y/y) (%) 8.6 (5.0) 9.3 (6.3)

Net exports contribution (pp.) -0.1 (-0.2) -0.9 (-1.2)

Values from the March projection are given in brackets (seasonally adjusted).

Indicators with values higher than in the March projection are marked green,

whereas indicators with lower values are marked red.

-8

-4

0

4

8

12

-8

-4

0

4

8

12

09q1 10q1 11q1 12q1 13q1 14q1 15q1 16q2*

Industrial and constr. production y/y Retail sales y/y

Real wage fund y/y GDP y/y (right scale)

* Estimates of NBP IE based on monthly indicators for IV-V/16



-2

-1

0

1

2

3

4

5

-2

-1

0

1

2

3

4

5

15q1 16q1 17q1 18q1 18q4

Consumption Gross fixed capital formation

Change in inventories Net exports

GDP

Higher GDP growth in the next quarters will stabilise in the second half of 2017 around 3,3%

Worsening of economic conditions abroad

Private consumption the main driver of GDP growth

supported by a rise in family benefits and good labour

market conditions

Positive gross fixed capital formation dynamics

- higher uncertainty and a drop in EU investment funds

Negative net exports – weak foreign demand and high

domestic consumption growth

y/y, % 2015 2016 2017 2018

GDP 3.6 3.2 3.5 3.3


Introduction



Uncertainty

Outline:


Economic conditions abroad


Negative influence of economic conditions abroad on the Polish economy

-8

-6

-4

-2

0

2

4

6

-8

-6

-4

-2

0

2

4

6

09q1 10q1 11q1 12q1 13q1 14q1 15q1 16q1 17q1 18q1 18q4

Euro area Germany

United States United Kingdom

y/y, %

Source: Bloomberg, Eurostat, NBP calculations

Higher uncertainty in markets due to British referendum

on the UK’s exit from the EU

Favourable consumption conditions in the Eurozone

and United States

Mounting pessimism concerning the sustainability

of growth in emerging economies

GDP y/y, % 2015 2016 2017 2018

Euro area 1.6 1.5 (1.4) 1.2 (1.6) 1.3 (1.5)

Germany 1.4 1.5 (1.5) 1.3 (1.7) 1.3 (1.6)

United States 2.4 1.7 (2.0) 2.1 (2.3) 2.2 (2.1)

United Kingdom 2.3 1.7 (2.2) 1.7 (2.4) 1.8 (2.4)

March 2016 projection data are given in brackets


United Kingdom is the fifth biggest importer in the world…

Source: UBS

Goods and services exports to

United Kingdom,

(% of total exports, 2011)

In 2015 UK’s imports constituted for 3.7% of world imports and 12% of EU imports

UK trade structure by country

(2014)

Source: ONS, BIS, NBP calculations

Goods and services exports

to United Kingdom,

(% value added, 2011)

0 25 50 75 100

Goods

Services

Goods

Services

EU USA Others

Ex

po

rts

Im

po

rts


… with a large share of financial sector,

which attracts foreign direct investment

Source: UBS

Foreign direct investment 2005-14,

(% FDI in EU)

The structure of UK banks’ debt

by countries (2014)

Financial services (% value added)

Source: IMF

Source: ONS, BIS, NBP calculations

0 25 50 75 100

Debt of banks

EU USA Others


Since 2012 United Kingdom is the second largest export market for Polish firms

Source: GUS, Eurostat

Polish trade with the

United Kingdom

Dynamics of Polish

exports to UK against

total exports

UK’s share in exports

in chosen EU

countries

in 2000 and 2015

UK’s share in polish

exports, chosen

categories

PLN bn

%

2000=100, current prices PLN

%

%

%

-10

0

10

20

30

40

50

60

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

net exports exports imports

0

5

10

15

20

25

Irel

and

Net

herla

nds

Bel

gium

Ger

man

y

Spa

in

Sw

eden

Fra

nce

Pol

and

Por

tuga

l

Den

mar

k

Slo

vaki

a

Italy

Cze

ch R

ep.

Fin

land

Hun

gary

Aus

tria

2000 2015

0

3

6

9

12

15

18

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Cars Processed food Consumer durable goods

0

150

300

450

600

750

900

4.0

4.5

5.0

5.5

6.0

6.5

7.0

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

United Kingdom share in Polish exports (LHS)Exports to United Kingdom (RHS, y/y)Total exports (RHS, y/y)%


Higher uncertainty in financial markets caused by Brexit is the most important short-term impact of the

referendum…

Short term transmission channel:

These phenomena are particularly noticeable in the UK

although they will also occur in economies which are

strongly tied to the British economy.

The depreciation of GBP will reduce the negative

impact of Brexit on aggregate demand dynamics in the

UK, while the depreciation of EUR/USD – in the

Eurozone

hig

her

uncert

ain

ty in f

inancia

l m

ark

ets

drop in asset prices

increased capital cost

slump in consumer and producer sentiment

Long term economic consequences with a very high

degree of uncertainty:

difficulties in predicting the form of the final

withdrawal agreement between the UK and the EU

(as indicated in the Treaty on European Union

could last at least 2 years)

among others, the agreement will specify:

the level of tariff and non-tariff barriers to

international trade,

the extent of labour and capital flow

restrictions between the UK and continental

Europe,

the level of UK’s contributions to the EU

budget

the extent to which the UK will be able to

establish new domestic regulations.


Higher uncertainty worsens the outlook on growth in the Eurozone …

Growth in the Eurozone is driven by domestic demand and will

continue to be in the coming quarters

A rise in uncertainty caused by Brexit will most likely lower

producer and consumer sentiment, making them less inclined

to consume and invest

With a worse external economic situation, net exports will have

a marginal (potentially negative at the beginning of the

projection horizon) contribution to growth.

Source: Eurostat.

-0.4

-0.2

0.0

0.2

0.4

0.6

0.8

2014 2015 2016

GDP growth structure in the Eurozone (%, q/q)

Private consumption Government spending Investment

Change in inventories Net exports GDP


… regardless of favourable domestic demand conditions in the Eurozone

Survey results among entrepreneurs indicated favourable prospects for further increases in employment.

Entrepreneurs declared an increase in plans for investment in machinery and equipment in 2016.

Lower producer and consumer sentiment could have a negative impact on GDP growth dynamics.

-20

-15

-10

-5

0

5

10

15

1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016

Declared investment by entrepreneurs in the Eurozone according to EC surveys

Source: Eurostat, ECB, European Commission, Markit Economics

-3

-2

-1

0

1

2

3

2005 2007 2009 2011 2013 2015 2017

Employment plans and labour force availability

Employment expectations (t-9)* Unemployment rate-NAWRU (p.p.)

* Based on EC surveys. Weighted average of standardized results for industry, services, construction

and retail trade.

-8

-6

-4

-2

0

2

4

-4

-3

-2

-1

0

1

2

2005 2007 2009 2011 2013 2015

Consumer and producer sentiment* and GDP dynamics (y/y, %)

Consumer confidence (LHS) PMI Composite (LHS)

GDP growth (RHS) * Normalized values.


Worsening of economic conditions in the labour market in the United States…

• Weaker employment growth as well as downward revisions of

historical data lead to more pessimistic estimates of the economic

situation in the American labour market. Furthermore, they pose a

main threat to the intensity of the expected increase of economic

growth dynamics in Q2 2016.

• These tendencies are reflected in a fall in the labour market

conditions indicator according to Fed¹ (FRB LMCI – Federal

Reserve Board of Governors Labor Market Conditions Index).

• In May the FRB LMCI index fell to its lowest level in the current

recovery/boom phase. The probability of recession in the next 12

months based on this index increased to 42% - the highest level

since the end of the last recession.

¹ FRB LMCI is estimated based on a dynamic factor model (DFM) for 19 time series describing the American

labour market – Chung H. T., Fallick B., Nekarda Ch. J., Ratner D. D. (2014), Assessing the Change in Labor

Market Conditions, Finance and Economics Discussion Series 2014-109, Board of Governors of the Federal

Reserve System.

Labour market conditons indicator

Remarks: probability calculated using a probit model for FRB LMCI; shaded area

indicates recession according to NBER.

Source: FRB, IE NBP.

0

20

40

60

80

100

-50

-40

-30

-20

-10

0

10

20

2000 2003 2006 2009 2012 2015

Recession probability at any month in subsequent 12 months (%, RHS)

FRB LMCI (p.p., m/m, LHS)


… leads to lower growth prospects, although they are still better than in the Eurozone

Growth perspectives in the United States declined relative to previous projection due to:

prolonged period of private investment and industrial activity adjustments ,

weak demand in external economies.

The main factor supporting economic growth in the forecasting horizon is private consumption.

Real GDP dynamics and its structure

(%, y/y)

Source: BEA, IE NBP.

Net household value and consumer sentiment

Remarks: shaded area indicates recession according to NBER.

Source: FRB, BEA, University of Michigan.

20

40

60

80

100

120

300

340

380

420

460

500

1976 1981 1986 1991 1996 2001 2006 2011 2016

Households' net worth (% of GDP, LHS) Consumer sentiment (points, RHS)

-5

-4

-3

-2

-1

0

1

2

3

4

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016 P

2017 P

2018 P

Private consumption Investment Change in inventories

Net exports Government spending GDP


Slowdown of economic growth in emerging economies gives rise to concerns over the

sustainability of this growth

-4

-2

0

2

4

6

8

10

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

Advanced economiesEmerging market and developing economies

IMF forecasts for real GDP growth in advanced

and developing economies (%)

-0.1

-0.2

-0.1 -0.1

-0.3

-0.2

-0.1

0.0

Jan-16 / Oct-15 Apr-16 / Jan-16

2016 2017

-0.2

-0.2 -0.2

-0.1

-0.3

-0.2

-0.1

0.0

Jan-16 / Oct-15 Apr-16 / Jan-16

2016 2017

Revisions of IMF forecasts for

real GDP growth in advanced

economies (p. p.)

Revisions of IMF forecasts for real

GDP growth in developing

economies (p. p.)

Source: IMF, World Economic Outlook, April 2016, January 2016, October 2015. Source: IMF, World Economic Outlook, April 2016


China: authorities are struggling to stabilise the economic growth, further moderate slowdown in the

medium-run

Private and public investment dynamics

(%, y/y)

Industrial production and retail sales

dynamics (%, y/y)

Actual and expected GDP dynamics

(%, y/y)

0

5

10

15

20

25

sty 13 paź 13 lip 14 kwi 15 sty 16

Private investment Public investment

9

10

11

12

13

14

5

6

7

8

9

10

11


Industrial production (LHS)

Retail sales (RHS)

6

7

8

I III I III I III I III I III I III

2012 2013 2014 2015 2016 2017

Actual data Bloomberg survey forecast

Source: Reuters Datastream, Bloomberg.


Russia gradually recovering from recession, recession in Brazil most likely to have reached a

trough

Russia: industrial production

and retail sales dynamics (%, y/y)

Brazil: industrial production

and retail sales dynamics (%, y/y)

Actual and expected GDP dynamics (% y/y)

Source: Reuters Datastream, Bloomberg.

-15

-10

-5

0

5

10

15

-6

-4

-2

0

2

4

6


Industrial production (LHS)

Retail sales (RHS)

-15

-10

-5

0

5

10


Industrial production Retail sales

-6

-4

-2

0

2

4

6

I III I III I III I III I III I III

2012 2013 2014 2015 2016 2017

Russia actual data

Russia Bloomberg survey forecast

Brazil actual data

Brazil Bloomberg survey forecast

• Russia’s economic prospects improved

due to the recent increase in oil prices.

• Political instability continues to have

a negative influence on economic outlook

in Brazil.

• Significant recovery is not expected in

either country.

Introduction



Uncertainty

Outline:


Consumption demand


-6

-4

-2

0

2

4

6

8

10

-6

-4

-2

0

2

4

6

8

10

09q1 10q1 11q1 12q1 13q1 14q1 15q1 16q1 17q1 18q118q4

y/y, %

Public consumption (y/y) (%)

Private consumption (y/y) (%)

Private consumption:

Systematic progress in households’ financial situation (higher

family benefits – programme „Family 500 plus”)

Good labour market conditions (further decrease in

unemployment rate, wage growth dynamics acceleration)

Improvement in consumer sentiment

Low interest rates facilitate financing consumption through

borrowing

Public consumption:

2016 Budget Act – low growth in current expenditure of general

government units and the absence of pay rises for school and

academic teachers

Consumption demand as the main driver of GDP growth in projection

y/y, % 2015 2016 2017 2018

Private consumption 3.1 4.0 4.0 3.4

Public consumption 3.4 2.6 3.3 3.5 Source: GUS data, NBP calculations


An increase in family benefits leads to an improvement in households’ financial situation

-2

-1

0

1

2

3

4

5

6

7

-2

-1

0

1

2

3

4

5

6

7

09q1 10q1 11q1 12q1 13q1 14q1 15q1 16q1 17q1 18q1 18q4

y/y, %


Disposable income (y/y) (%)

Since April 2016, family benefits increased with initiation of the „Family

500 plus” programme

Due to the intertemporal consumption smoothing mechanism,

additional means will affect household expenditure growth with a lag

Decomposition of disposable incomes (constant prices) (y/y, %)

Source: GUS data, NBP calculations, Eurostat

-2

0

2

4

6

8

-2

0

2

4

6

8

15q1 16q1 17q1 18q1 18q4

Operating surplus Property income

Wage fund Net transfers and taxes

Disposable income (y/y, %)


Labour market is still experiencing a significant growth in the number of workers and a relatively

low growth in wages

16q1

ULC (y/y) (%) 1.4 (0.9)

Labour productivity (y/y) (%) 1.9 (2.8)

Gross wages (y/y) (%) 3.1 (3.3)

Employment LFS (r/r) (%) 1.1 (0.9)

Unemployment rate LFS (%) 6.2 (7.2)

Participation rate (%) 56.2 (56.3)




Source: GUS data, NBP calculations, Szybki Monitoring NBP

Employment forecast indicator

Percentage of firms planning to raise wages and percentage

of employees having received a rise

balance empl.

ind.

empl.

ind. sa.

long-term average


Unemployment rate at historical minimum without generating a strong wage pressure

In the first half of 2016 the unemployment rate reached historical minima:

BAEL: 6.3% s.a. in Q1 2016

Registered: 9.2% in April 2016

Preferred number of hours of work remains above the actual one,

therefore it does not create a pressure on wage growth.

Hourly mismatch in the labour market gap

Source: GUS, NBP calculations

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

LFS unemployment rate (s.a.)

Registered unemployment rate (s.a.)

8.6%

7.5%

6%

7%

8%

9%

10%

11%

12%

13%

14%

15%

2007 I 2008 I 2009 I 2010 I 2011 I 2012 I 2013 I 2014 I 2015 I 2016 I

BBUI indicator (sa)* Unemployment index (sa) *


Civil law contracts transformation increases employment

Good situation in the labour market as well as new regulations

introduced in the beginning of 2016 (limiting fixed-term employment

contracts and requiring the payment of social contribution in civil law

contracts) contributed to employment stabilization.

Self-employment continues to be a flexible form of providing

work and the number of people choosing this scheme is

noticeably increasing.


-2%

0%

2%

4%

6%

2007 I 2008 I 2009 I 2010 I 2011 I 2012 I 2013 I 2014 I 2015 I 2016 I

Empolyees

Self-employed in agriculture

Self-employed non-agricultural

Contributing family workers

Total LFS employment y/y

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Contribution - open-ended employment contracts y/y - s.a.

Contribution - fixed-term employment contracts y/y - s.a.

Employees y/y - s.a.


Gradual slowdown in employment growth in the projection horizon …

53

54

55

56

57

-2

-1

0

1

2

3

4

5

6

09q1 10q1 11q1 12q1 13q1 14q1 15q1 16q1 17q1 18q118q4

Employment (y/y) (%)

Participation rate (%, RHS)


39.9

40.1

40.3

40.5

40.7

40.9

41.1

41.3

41.5

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Employees y/y - s.a.

Worked hours per week - s.a. (RHS)


… with accelerating wage dynamics although still remaining at a moderate level

-2

0

2

4

6

8

-2

0

2

4

6

8

09q1 10q1 11q1 12q1 13q1 14q1 15q1 16q1 17q1 18q118q4

Nominal wages (y/y) (%)

Real wages (y/y) (%)


Beveridge curve

Unemployment rate, s.a.

Vacancie

s/(

vacancie

s+

em

plo

ym

ent)

, s.a

.


Forecasted increase in the share of labour cost in output

Source: GUS, NBP calculations, Eurostat

-2

0

2

4

6

8

-2

0

2

4

6

8

09q1 10q1 11q1 12q1 13q1 14q1 15q1 16q1 17q1 18q118q4

Wage fund (y/y) (%)


41

41.5

42

42.5

43

43.5

44

41

41.5

42

42.5

43

43.5

44

09q1 10q1 11q1 12q1 13q1 14q1 15q1 16q1 17q1 18q118q4

costs associated with employment (% GVA)


Consumption fostered alsoby positive consumer sentiment

Consumer confidence indicators

Current purchases and intentions of purchases

Past and future financial situation of households

Retail sales


-45

-35

-25

-15

-5

5

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

current (s.a.) leading (s.a.)

-50

-40

-30

-20

-10

0

10

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Major purchases currently made (s.a.)

Major purchases in the next 12 months (s.a.)

0

20

40

60

80

-30

-25

-20

-15

-10

-5

0

5

Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16

Financial situation of households in recent 12 months (s.a.)

Financial situation of households in the next 12 months (s.a.)

Fear of being unemployed (s.a.)

- 4

- 2

0

2

4

6

8

10

12

14

80

90

100

110

120

130

140

150

160

170

180

Jan-

11

Apr

-11

Jul-1

1

Oct

-11

Jan-

12

Apr

-12

Jul-1

2

Oct

-12

Jan-

13

Apr

-13

Jul-1

3

Oct

-13

Jan-

14

Apr

-14

Jul-1

4

Oct

-14

Jan-

15

Apr

-15

Jul-1

5

Oct

-15

Jan-

16

Apr

-16

dynamics y/y (RHS) index trend

Introduction



Uncertainty

Outline:


Investment demand


Private investment:

Good financial situation of firms and low energy prices

High uncertainty including that about external economic

conditions and expected tax burden increases

Public investment:

The influx of funds for the years 2007-2013 is coming to an

end, the utilisation of 2014-2020 funds developing gradually

Housing investment:

Good labour market conditions

Tighter credit conditions (Recommendation S)

Investment rate of growth lower than in the years 2014-2015

y/y, % 2015 2016 2017 2018

Gross fixed capital formation 5.8 1.2 4.1 4.4

-10

-8

-6

-4

-2

0

2

4

6

8

10

12

-10

-8

-6

-4

-2

0

2

4

6

8

10

12

09q1 10q1 11q1 12q1 13q1 14q1 15q1 16q1 17q1 18q118q4

GFCF enterprises GFCF public sector

GFCF housing GFCF



A drop in investment in Q1 2016 – mainly public, but also lower corporate investment dynamics.

Source: GUS (forecast of general economic situation), Markit, IRG-SGH, obliczenia NBP

Domestic activity indicators

Source: Eurostat, MF. Non adjusted.

* Data for Q1 2016 – total investments (IE estimate), local gov. Expenditure (MF)

Public investments dynamics

by expediture type

44

46

48

50

52

54

56

-15

-10

-5

0

5

10

15

2011 2012 2013 2014 2015 2016

IRG-SGH (s.a.) GUS (s.a.) PMI (s.a., RHS)

-30

-20

-10

0

10

20

14q1 14q2 14q3 14q4 15q1 15q2 15q3 15q4 16q1*

%

Local gov. units - domestic Local gov. units - from EU

Others Total public investments


Planned changes in investment outlays

within a quarter and in the current year, y/y

New investment indicator

(share of enterprises planning to commence

new investment within a quarter)

Source: Quick Monitoring NBP

Surveys among enterprises confirm a slowdown in investment compared to 2014-2015


Assessment of the uncertainty of the own situation Current assessment and forecasts

of economic situation in Poland

-26

-23

-20

-17

-14

-11

-8

2012 2013 2014 2015 2016

Firms report an increase in uncertainty …


-70

-60

-50

-40

-30

-20

-10

0

10

20

30

2010 2011 2012 2013 2014 2015 2016 2017

assessment forecasts


Assessment of the uncertainty of the situation Reasons for absence of investment plans in a one-year

horizon

(% of firms not planning to launch new investment

projects, excluding cases where no need for

investment was stated)

… including uncertainty about the expected growth of tax burden …


36.0

26.7

19.3

13.2

4.7

other

uncertainty ofeconomicenvironment

insufficient demand

financial problems

cash flow

0

1

2

3

4

5

6

7

8

9

10

-30

-25

-20

-15

-10

-5

0

5

2012 2013 2014 2015 2016

uncertainty (Lhs) uncertainty as a barrier (Rhs)

tax/law changes as a barrier (Rhs)


Quarterly forecast of demand, output and orders (s.a.) Capacity utilisation

… regardless of a relatively high capacity utilisation

Source: GUS, Quick Monitoring NBP

75

77

79

81

83

85

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

indicator indicator s.a. mean values

-15

-10

-5

0

5

10

15

20

25

30

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

demand output new orders


Source: MR, NBP calculations

New data give grounds for lowering the pace of EU funds utilisation compared to the previous projection

0

10

20

30

40

50

60

2016 2017 2018

Forecasts of the structural EU funds utilisation

III 2016 VII 2016

%

PLN bn

Source: NBP calculations

0 2 4 6 8 10

financial framework 2007-2013allocation % in May 2009

financial framework 2014-2020allocation % in May 2016

Value of contracts signed for the use of EU funds ( % allocation)

Infrastructure and The Environment (no roads)

Expenditure on road construction

Innovative Economy / Smart Growth

Human capital / Knowledge Education Development

Regional Operational Programmes

Others

6.8%

8.1%

Introduction



Uncertainty

Outline:


Foreign trade


-4

-3

-2

-1

0

1

2

3

4

5

-20

-15

-10

-5

0

5

10

15

20

25

09q1 10q1 11q1 12q1 13q1 14q1 15q1 16q1 17q1 18q1 18q4

Net exports contribution (p.p., RHS)

Exports (y/y) (%)

Imports (y/y) (%)


Net exports contribution to growth will continue to limit GDP dynamics

Exports:

Greater uncertainty and downward revisions of forecasted

demand in European economies

Unfavourable economic situation in emerging economies

(persistent slowdown in China, recession in Russia and

Brazil)

Imports:

Expected consumption growth above the long-term

average

y/y p.p. 2015 2016 2017 2018

Net exports

contribution 0.3 -0.3 -0.6 -0.4


3.6

3.8

4

4.2

4.4

4.6

4.8

3.6

3.8

4

4.2

4.4

4.6

4.8

09q1 10q1 11q1 12q1 13q1 14q1 15q1 16q1 17q1 18q1 18q4

Real effective exchange rate

Together with normalization of situation on FX markets,

gradual PLN appreciation, closer to equilibrium

exchange rate

Gradual decrease of current and capital account from

current, record high level, together with smaller but

positive trade balance


-6

-4

-2

0

2

4

6

-6

-4

-2

0

2

4

6

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Remittances Primary income

Secondary income Goods and services

Current and capital account (% GDP)

Introduction



Uncertainty

Outline:


Inflation


Continuation of deflation - still highly influenced by energy prices but close to zero core inflation





* NBP IE estimates based on monthly indicators for IV-V/16

y/y, % 16q1

CPI inflation -0.9 (-0.6)

Core inflation -0.1 (0.2)

Food prices inflation 0.4 (0.7)

Energy prices inflation -5.3 (-4.9)

-3

-2

-1

0

1

-3

-2

-1

0

1

2014 2015 2016

Food and non-alcoholic beverages Energy

Services Non-food goods

CPI



Positive consumer price dynamics from 2016q4 although still below the NBP inflation target

Lack of demand pressure:

Negative output gap

Limited cost pressure:

Low levels of commodity prices

Low unit labour cost dynamics

Low import price dynamics

Expected reinstatement of lower VAT rates in 2017

y/y, % 2015 2016 2017 2018

CPI inflation -1.0 -0.5 1.3 1.5

-2

-1

0

1

2

3

4

5

-2

-1

0

1

2

3

4

5

09q1 10q1 11q1 12q1 13q1 14q1 15q1 16q1 17q1 18q1 18q4

Core inflation Food prices

Energy prices CPI inflation


Lack of demand pressure reflected in the negative output gap

-0.5

0

0.5

1

1.5

2

2.5

3

3.5

4

-0.5

0

0.5

1

1.5

2

2.5

3

3.5

4

15q1 16q1 17q1 18q1 18q4

Economically active pop. NAWRU

Capital TFP

Potential output

-3

-2

-1

0

1

2

3

4

5

6

-3

-2

-1

0

1

2

3

4

5

6

09q1 10q1 11q1 12q1 13q1 14q1 15q1 16q1 17q1 18q1 18q4

Output gap (% potential output) GDP (y/y) (%)

Potential output (y/y) (%)



Following sharp decreases, crude oil prices rise since the beginning of the year

Source: US Department of Energy, Bloomberg, Bureau of Economic Analysis

Rising disturbances in oil supply

Higher demand for oil in Asian

developing economies

Decreasing production in the USA

Higher inventories, especially in USA

0

1

2

3

4

2013 2014 2015 2016

other countries OPEC

3

3.5

4

4.5

5

5.5

2012 2013 2014 2015 2016 2017

5

6

7

8

9

10

2011 2012 2013 2014 2015 2016

100

200

300

400

500

600

1920 1930 1940 1950 1960 1970 1980 1990 2000 2010

20

40

60

80

100

120

2014 2015 2016

daily monthly average quaterly averageDisruption in oil production (mln b/d)

Oil demand in India (mln b/d)

Crude oil production in the USA (mln b/d)

Market inventories of crude oil in the US (mln b)


In the long term, oil prices will gradually increase as growth of inventories decelerates

Source: US Department of Energy, NBP calculations

Global supply and demand for crude oil and

change in inventories (bn b/d)

Brent crude oil (USD/b) forecasts

according to US Department of Energy

30

35

40

45

50

55

60

65

70

2015 2016 2017

Brent crude oilprice

november 2015

december 2015

january 2016

february 2016

march 2016

april 2016

may 2016

june 2016

-0.5

0

0.5

1

1.5

2

2.5

3

91

92

93

94

95

96

97

98

2014 2015 2016 2017

Implied stock change and balance (right axis)

World production (left axis)

World consumption (left axis)


Other commodity prices – similarly to oil – expected to moderately increase following the declines

Source: GUS, Bloomberg, Reuters, NBP calculations

-8

-6

-4

-2

0

2

4

6

8

10

12

-8

-6

-4

-2

0

2

4

6

8

10

12

09q1 10q1 11q1 12q1 13q1 14q1 15q1 16q1 17q1 18q1 18q4

y/y, % Food prices inflation (%)

Energy prices inflation (%)

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

1.1

1.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

1.1

1.2

09q1 10q1 11q1 12q1 13q1 14q1 15q1 16q1 17q1 18q1 18q4

Index of agricultural commodity prices (EUR, 2011=100)

Index of energy commodity prices (USD, 2011=100)


Low domestic inflation influenced by global factors

including low price dynamics in the external environment

In the previous year, GVA deflator dynamics was fuelled by an

increase in unit mark-up as a result of low oil prices.

In the shorter term, we can expect a brief fall in the

GVA deflator dynamics resulting from the temporary weaker unit

mark-up growth due to commodity prices stabilisation. Additionally,

it will be influenced by the drop in ULC dynamics associated with

labour market adjustments and low inflation.

In the longer term, GVA deflator dynamics should increase due to

the rising unit mark-up growth caused by closing output gap as

well as the increased ULC dynamics related to higher inflation and

lower labour share.

Source: Eurostat, IMF.

-2

-1

0

1

2

3

4

2001 2003 2005 2007 2009 2011 2013 2015

Decomposition of the annual changes in the GVA deflator

Taxes Profit margins ULC GVA deflator HICP

-4

-2

0

2

4

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016P

2017P

2018P

Output gap and inflation in the Eurozone

Output gap (%) Consumer price inflation (%, y/y)

%


Sluggish price dynamics abroad and the appreciating exchange rate affect domestic import prices

Source: Bloomberg, GUS, NBP calculations

3.6

3.8

4

4.2

4.4

4.6

4.8

3.6

3.8

4

4.2

4.4

4.6

4.8

09q1 10q1 11q1 12q1 13q1 14q1 15q1 16q1 17q1 18q1 18q4

Real effective exchange rate

-6

-4

-2

0

2

4

6

8

10

12

14

-6

-4

-2

0

2

4

6

8

10

12

14

09q1 10q1 11q1 12q1 13q1 14q1 15q1 16q1 17q1 18q1 18q4

y/y, % Import prices (no oil and gas) (y/y) (%)

Import prices (y/y) (%)


The robust labour market is curbing the risk of a liquidity trap without generating a significant

cost pressure

-2

0

2

4

6

8

-2

0

2

4

6

8

09q1 10q1 11q1 12q1 13q1 14q1 15q1 16q1 17q1 18q118q4

Wages (y/y) (%)

Labour productivity (y/y) (%)

ULC (y/y) (%)

-2

0

2

4

6

4

6

8

10

12

09q1 10q1 11q1 12q1 13q1 14q1 15q1 16q1 17q1 18q118q4

Unemployment gap (p.p., RHS) Unemployment (%)

NAWRU (%)


Inflation projection of the NBP based on the NECMOD model

Falls in producer prices deemed neutral from firms’ perspective

54

Influence of PPI decrease on economic

situation of enterprises

Source: Szybki Monitoring NBP

In 2016 Q2, more than 3/4 of firms assessed the impact of the decline in

producer prices as insignificant to their situation (in terms of the net impact

on costs and revenue)

The frequency of negative assessments of the impact of PPI price

declines remains stable however, they outstrip the positive assessments.

The negative impact is related to the markedly more frequent declarations

of the need to reduce prices

Percentage of firms having raised or reduced prices

The adverse effects of deflation are most often observed by firms

forced to reduce their prices

Among the firms having reduced their prices, 49% consider the

decline in PPI as adverse; in the remainder group the figure is 10%.

Introduction



Uncertainty

Outline:


Uncertainty

Risk factors

Fan charts


Risk area Description Impact Scale of

impact

External environment of

the Polish economy

Elevated uncertainty in financial markets adversely affecting consumer and producer

sentiment, not only in the United Kingdom, but also in the global economy as a result of

United Kingdom’s planned withdrawal from the European Union.

Deterioration in economic performance of the Chinese economy mainly due to stability

of its financial system:

- consequences of excessive investment in the housing sector and industry,

- the considerable debt of local government units.

Decline in economic activity in the US caused by:

- weaker Chinese demand

- falls in oil prices

- lower firm profits accompanied by higher indebtedness

Inflation

GDP **

Diminished uncertainty about the consequences of potential Brexit

Faster economic growth in the Eurozone (lower uncertainty, stronger than currently

expected impact of the ECB’s quantitative easing policy and structural reforms)

Later in the projection horizon, economic growth could benefit from the effect of the

implementation of the European Commission's Investment Plan for the years 2015-

2017

Inflation

GDP **


Risk area Description Impact Scale of

impact

Crude oil prices in the

global markets

Supply disruptions in the global markets:

- supply of Iranian oil as a result of the lifting of sanctions lin January 2016

by the European Union and the United States,

- the reaction of American oil producers to the deepening decline in prices of this

commodity,

Growth prospects in the global economy (especially in emerging countries).

Inflation

GDP *

Fiscal policy

Fiscal policy measures aimed at keeping the Public Finance Sector deficit below 3%

- Maintaining the basic VAT rate in 2017-2018 at its current level

- Slowdown in wage growth in the public sector as well as in intermediate consumption

Inflation

GDP ?

Conclusions Inflation

GDP


-1

0

1

2

3

4

5

6

7

8

-1

0

1

2

3

4

5

6

7

8

13q1 14q1 15q1 16q1 17q1 18q1 18q4

90% 60% 30% central path

GDP

y/y, %

central

path

50% probability

interval

2016 3.2 2.5 3.8

2017 3.5 2.3 4.4

2018 3.3 2.0 4.3


CPI

y/y, %

below

1.5%

below

2.5%

below

3.5%

below

centr.path

in the range

1.5-3.5%

2016 100% 100% 100% 55% 0%

2017 58% 83% 95% 53% 37%

2018 53% 75% 90% 53% 37%

CPI

y/y, %

central

path

50% probability

interval

2016 -0.5 -0.9 -0.3

2017 1.3 0.3 2.2

2018 1.5 0.3 2.6

CPI inflation y/y, % GDP y/y, %

-3

-2

-1

0

1

2

3

4

5

-3

-2

-1

0

1

2

3

4

5

13q1 14q1 15q1 16q1 17q1 18q1 18q4

90% 60% 30% central path inflation target

inflation projection of narodowy bank polski based on the ... · march 2016 projection data are...

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