FINANCIAL MARKET INFLATION EXPECTATIONS - SEPTEMBER. Financial Market Department Operations Analyses Division

Transcription

1 FINANCIAL MARKET INFLATION EXPECTATIONS - SEPTEMBER Financial Market Department Operations Analyses Division 2018

2 I. SUMMARY 2 Fourteen domestic and two foreign analysts took part in the CNB s survey. The inflation forecast decreased only very slightly at the one-year horizon and remained stable at the three-year horizon. By contrast, the expected growth rate of the Czech economy stayed the same as in the August forecasts. The outlook for the 2W repo rate shifted higher again at both horizons. The short-term forecast for the exchange rate of the koruna reflects its recent strengthening. In the longer time horizon, the analysts stick to an appreciation scenario. A tight labour market and the recent government measures led to a further increase in the expected rate of wage growth in both horizons monitored. DOMESTIC ANALYSTS I. II. III. IV. V. VI. VII. VIII. IX. X. XI. XII. J. Polanský, Česká spořitelna David Marek, Deloitte Czech Republic Viktor Zeisel, Marek Dřímal, Komerční banka Patrik Rožumberský, Unicredit Global Research František Táborský, Helena Horská, Raiffeisenbank Petr Dufek, ČSOB Petr Sklenář, J&T Banka Radomír Jáč, Generali Investments CEE Jaromír Šindel, Citi Martin Janíčko, Kamil Kovář, Moody's Analytics Jan Kudláček, Tomáš Lébl, AXA Jakub Seidler, ING Lukáš Kovanda, Cyrrus Michal Šoltés, RoklenFin FOREIGN ANALYSTS Kevin Daly, Yanrong Tan, Goldman Sachs Emily Mansfield, The Economist Intelligence Unit Jose A. Cerveira, JP Morgan We would like to thank everyone who contributed to this survey of financial market inflation expectations. Prague,

3 3 II. INFLATION FORECAST FOR Y/Y CPI GROWTH (%) 1Y AND 3Y FORECAST FOR CPI GROWTH (%) CPI ANALYSTS CNB (%) Y 3Y 1Y 3Y 1Y minimum 1,7 1, ,2 3Q: 1.9 2, ,1 1,9 4Q: 2.2 maximum 2,6 2, ,1 0, ,1 1,9 1Q: ,1 0, ,1 2Q: 1, ,2 0, ,1 3Q: 2,1 Inflation accelerated in August, due mainly to growth in prices of housing, recreation, personal care products and services, and also prices of non-alcoholic beverages and some foods. The consumer price index rose by 2.5% year on year in August, whereas in July it had reached just 2.3%. However, the analysts one-year forecast slightly declined compared to August. At the three-year horizon, the forecast is unchanged and remains at the CNB s 2% inflation target. The range of the individual forecasts for the one-year horizon widened due to a drop in the minimum value, while the range of the three-year forecasts was unchanged. The analysts remain convinced that the current labour market situation is creating inflation pressures through growth in firms wage costs. They believe that it is just a matter of time before a drop in profit margins forces producers to raise prices. Both the current and future rate of wage and pension growth implies, according to the analysts, further strong growth in household consumption. Based on the latest developments, the analysts also point out that the era of cheap energy is coming to an end. Moreover, they expect food price growth to accelerate owing to a weaker harvest in connection with this year s droughts. CPI: ACTUAL DATA AND 1Y PREDICTIONS OF ANALYSTS (AVERAGE) AND OF CNB (%) 3,1 2,7 2,3 1,9 1,1 range 0,7 0,3 CNB -0,1 CPI AT 1Y: PREDICTIONS OF INDIVIDUAL ANALYSTS ANALYSTS

4 III. GROSS DOMESTIC PRODUCT 4 FORECAST FOR GDP GROWTH (%) FORECAST FOR GDP GROWTH (%) end of year end of year 2018 current current+1y current current+1y minimum 2,9 2, ,1 3,1 3,1 2, ,4 3,2 maximum 3,4 3, ,5 3, ,4 2, , , , ,1 2,9 A slowdown in the growth of the Czech economy in 2018 Q2 had led to a drop in the expected GDP growth in August and the analysts maintained this view in. The growth forecast remained at 3.1% for this year and fell slightly to 2.9% for next year. The range of the forecasts has narrowed since the last survey, due to a larger drop in the maximum value in the case of this year. Both the minimum and maximum values in the forecasts for next year decreased, with a larger drop in the maximum value. The analysts justify the expected moderation of domestic economic growth both this year and the next mainly by capacity constraints. According to the analysts, the Czech economy has long been operating above its potential output level and has little room to expand without further larger investment, due to a shortage of employees. The analysts mention especially an obvious lack of qualified labour force, which is affecting mainly industry. Therefore, they expect that the slower growth this year will be due chiefly to net exports and inventories. In this regard, the shape of the German economy remains crucial for the Czech economy. A potential escalation of trade disputes between the USA and the EU, which would lead to a drop in external demand, is a risk to the Czech Republic s export activity. The growth of the domestic economy should continue to be supported by strong household consumption and investment, where investment spending will be boosted by an inflow of money from EU funds. GDP GROWTH IN CURRENT YEAR: AVERAGE AND RANGE OF PREDICTIONS 5,0 4,5 4,0 0,5 0,0-0,

5 5 IV. INTEREST RATES FORECAST FOR 2W REPO, 12M PRIBOR AND 5Y AND 10Y IRS (%) 2W repo rate 12M PRIBOR 5Y IRS 10Y IRS 1M 1Y 1M 1Y 1M 1Y 1M 1Y ,32 0,87 0,71 1,25 1,25 1,68 1,49 1, ,53 1,19 0,96 1, ,80 2, ,50 1,27 1 1,73 1,62 5 1,86 2, ,71 1,32 1,16 1,79 1,67 5 1,88 2, ,75 1,34 1,14 1,76 1,67 4 1,88 2, ,81 1,40 1,22 1,83 1,86 2,19 5 2, ,36 0 1,68 2,28 2,14 2,48 2,24 2, ,45 2,16 1,89 3 2,34 2,68 2,40 2,86 FORECASTS: MINIMUM, AVERAGE AND MAXIMUM 2W REPO, 12M PRIBOR, 5Y AND 10Y IRS (%) 2W repo rate 12M PRIBOR 5Y IRS 10Y IRS M 1Y 1M 1Y 1M 1Y 1M 1Y minimum 1,25 1,75 1,70 2,10 3 1,99 2,23 2,36 1,45 2,16 1,89 3 2,34 2,68 2,40 2,86 maximum ,63 3,40 2,68 0 ACTUAL INDICATOR VALUES AS OF FORECAST DEADLINE (%) 2W 12M 5Y 10Y repo rate PRIBOR IRS IRS ,25 1,79 2,39 2,44 The analysts shifted their estimates towards a sharper tightening of the CNB s monetary policy. Thirteen of the respondents expect an increase of the 2W repo rate by 25 bp to 1.50% at the bank s meeting, whereas three expect rates to stay at the current levels (in August, seven analysts expected a rate hike in and nine expected stability). The change in expectations was due to the CNB s rhetoric, particularly a statement by Governor Jiří Rusnok in favour of this step. Some of the analysts say that they consider as likely two rate hikes in total by the end of this year. Predictions for the 2W repo rate at the one-year horizon also changed significantly (see the table below). According to the survey, the 2W repo rate will be between 1.75% and 2.50% one year ahead. ANALYSTS FORECAST - 2W REPO RATE LEVEL IN 1Y (%) 2W repo rate level in 1Y (%) 0 1,75 0 2,25 0 number of analysts - current survey previous survey The forecasts for future PRIBOR reference rates and swap rates take into account the expected change in the 2W repo rate at the CNB s meeting. The forecast for the 12M PRIBOR reference rate shifted upwards by 21 bp for the onemonth forecast and 25 bp for the one-year forecast. The movements of the 5Y and 10Y swap rates were smaller (20 and 16 bp respectively).

6 IV. INTEREST RATES 6 12M PRIBOR AT 1Y : ACTUAL DATA, AVERAGE AND RANGE OF PREDICTIONS 0,5 % 2,6 2,2 1,8 1,4 2W REPO AND 12M PRIBOR: 1Y PREDICTIONS OF INDIVIDUAL ANALYSTS 12M PRIBOR 2W REPO 0,0 ANALYSTS 5Y IRS AT 1Y: AVERAGE AND RANGEOF PREDICTIONS 0,5 0,0 10Y IRS AT 1Y: AVERAGE AND RANGE OF PREDICTIONS 0,5 0,0

7 7 V. EXCHANGE RATE 1M AND 1Y EXCHANGE RATE FORECAST EXCHANGE RATE FORECAST EUR/CZK EUR/CZK 1M 1Y M 1Y ,03 25,43 minimum 25,45 24, ,50 24,93 25,53 24, ,51 24,85 maximum 25,60 25, ,43 24, ,29 24, ,51 24, ,63 24, , ,53 24,82 ACTUAL EUR/CZK AS OF FORECAST DEADLINE The koruna has strengthened against the euro since the last survey, which was logically reflected in the analysts short-term forecasts. According to the estimate, the koruna will stand at CZK to the euro in mid-october, which represents an appreciation of 10 hellers. The estimate at the one-year horizon also shifted towards appreciation of 5 hellers. The koruna is thus expected to stand just above CZK to the euro in While the range of the estimates narrowed significantly (from 35 to 15 hellers) in the short term, it conversely widened by 17 hellers in the longer term (one year) due to opposite movements of the minimum and maximum values. A calming of sentiment towards emerging market currencies (especially following an increase in the key rate in Turkey) and statements by Governor Rusnok and some other Bank Board members in favour of a rate increase in and one more hike by the year-end sent the koruna to stronger levels than forecasted by the central bank for 2018 Q3. The analysts expect the appreciation trend of the koruna to continue in the medium-term due to the Czech Republic s relatively low debt and positive developments of the balance of payments. A growing interest rate differential is also expected to affect the koruna positively. The analysts thus expect the koruna to show solid resilience against potential episodes of political instability and changes in market sentiment. EUR/CZK: ACTUAL DATA, 1Y PREDICTIONS AND THEIR RANGE 28,0 EUR/CZK AT 1Y: PREDICTIONS OF INDIVIDUAL ANALYSTS 25,5 27,0 25,0 26,0 25,0 24,5 24,0 prediction 2 24,0 2 ANALYSTS

8 VI. WAGES 8 FORECAST FOR NOMINAL WAGE GROWTH (%) FORECAST FOR NOMINAL WAGE GROWTH (%) year end year end 2018 current current+1y current current+1y minimum 7,5 5, ,5 5,9 8,2 6, ,7 6,7 maximum 8,5 7, ,7 7, ,2 5, ,2 5, ,8 5, ,9 5, ,2 6,3 The domestic labour market remains very tight despite slower economic growth. The unemployment rate stayed at 3.1% in August, but the number of vacancies increased again. Employers demands exceed the number of unemployed persons by around 800. According to the analysts, the very tight labour market situation combined with buoyant wage growth in the public sector (the government has proposed an 8% rise in public sector pay) is forcing companies to raise wages more rapidly, which is already apparent in agreements in some key industrial firms. They also mention the fact that restrictions on hiring workers from countries outside the EU will be eased only minimally. A combination of these factors led the analysts to raise the expected rate of wage growth in both years monitored by percentage point compared to August, specifically to 8.2% this year and 6.2% next year. WAGE GROWTH - END OF CURRENT YEAR: AVERAGEAND RANGE OF PREDICTIONS (%) 8,5 8,0 7,5 7,0 6,5 6,0 5,5 5,0 4,5 4, prediction