Inves tment as engine for growth prospects and challenges

Transcription

1 Inves tment as engine for growth prospects and challenges Zagreb, 7 March 2018 Vedran Šošić, vice governor boris.vujcic@hnb.hr

2 Highlights Investment dynamics recovery underway Better fundamentals, improved access to finance Can inves tments do better in lifting potential growth? Capital allocation Structural barriers

3 Investment accelerates, but remains below pre-cris is level Investment dynamics Croatia vs. peers in % index, 2010 = 100 in % of GDP Annual change in capital investment Capital investment (seasonaly adjusted) - rhs 90 0 LV EE LT SI HR SK RO BG HU CZ PL CEE avg CEE avg. Source: CBS Source: Eurostat

4 Advers e developments more pronounced in the private s ector, except for Croatia Public investment Private investment in % of GDP in % of GDP HR LT CZ EE LV BG HU RO SI SK PL 0 LV EE SI LT SK BG RO HR HU CZ PL CEE avg CEE avg CEE avg CEE avg. Source: Eurostat Sources: Eurostat, CNB estimate.

5 During the cris is inves tments dropped acros s the board, but s hare of tradables increas ed Investment structure by sectors, (in HRK billions) in billion HRK A B,C,D,E F G H I J K 10 O,P,Q 8 1 R,S,T,U 1 L M,N Investment structure by sectors, (% of total) A 3 0% 10% 20% 30% 40% 50% 60% 70% 80% 21 B,C,D,E F 5 8 G 11 8 H 5 5 I 7 5 J 6 11 K 6 L M,N 90% 12 O,P,Q % 1 R,S,T,U Notes: The data pertains to gross nominal investment in new and existing fixed assets of legal entities by activity of investor. Source: CBS

6 Investment recovery driven by tradable s ectors Agriculture, forestry and fishing (A) Manufacturing, mining and quarrying and other industries (B,C,D,E) Construction (F) Wholesale and retail trade (G) Transportation, storage (H) Accommodation and food service (I) Information and communication (J) Financial and insurance activities (K) Real estate activities (L) Professional, scientific, technical, administrative and support service activities (M,N) Public administration and defence, education, human health and social work activities (O,P,Q) Contributions to investment growth by sectors ( period) Other service activities (R,S,T,U) percentage points Notes: The data pertains to gross nominal investment in new and existing fixed assets of legal entities by activity of investor. Source: CBS

7 Broad based recovery of business investment from regional perspective cumulative growth Note: The data pertains to gross nominal investment in fixed assets of legal entities by location of investment. Source: CBS

8 100% Own funds s till the mos t important s ource of finance, EU funds importance gradually grows Sources of financing of investment Sources of financing across sectors: % 80% 70% 60% 50% 40% 30% 20% 10% 0% Own funds Credit and financial lease Own funds Credit and financial lease EU funds Public funds EU funds Public funds Other Other Note: The data shows the sources of financing of investment in fixed assets of legal entities. A Agriculture, forestry and fishing; B,C,D,E Manufacturing, mining and quarrying and other industries; F Construction; G Whole sale and trade; H Transportation and storage; I Accommodation and food service; J Information and communication; K - Financial and insurance activities; L Real estate activities; M,N Professional, scientific, technical, administrative, and support service activities; O,P,Q Public administration, and defence, education, huma n health and social work activities; R,S,T,U - Other service activities Source: CBS 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

9 Access to finance improves and financing sources divers ify Croatian SMEs financing sources, 2015 and 2017 Source: SAFE (CNB, 2017, 2015)

10 Increasing demand for investment finance mos tly driven by manufacturing and s ervices Reasons for external financing, by firm size 2017 vs Investment Current operations Introduction of new products Expanding to other markets Debt refinancing Other 2% 4% 5% 3% 4% 4% 11% 14% 9% 12% 18% 15% 12% 13% 11% 10% 9% 12% 9% 12% 15% 25% 24% 26% 29% 0% 10% 20% 30% 40% 50% Small enterprises 2015 Medium-sized enterprises 2015 Small enterprises 2017 Medium-sized enterprises 2017 Large enterprises % 33% 36% 40% 50% Reasons for external financing, by sectors % 40% 35% 30% 25% 20% 15% 10% 5% 0% Industry Services Trade Investment Current operations Introduction of new products Expanding to other markets Other Debt refinancing Construction

11 Bank interes t rates falling, lending standards eas ing Bank interest rates on loans to enterprise s Weighted average interest rate (%) ,9 7,5 3,10 3,25 Bank lending standards for ente rprise s (Net percentage of banks responses, weighted by the 30 share in total loans to enterprise s) EASING TIGHTENING Long-term loans to NFCs Short-term loans to NFCs Jan Source: CNB. Source: Bank Lending Survey - CNB.

12 Deleveraging pres s ures have abated, though firm-level look reveals remaining vulnerabilities Recovery of bank lending for investment Debt overhang still sizeable, concentrated in large, non-exporting, foreign-owned firms; construction 10 8 annual rate of change (in %) Loans for investment Loans for financing working capital Other loans Note: Rates of change based on transactions data. Source: CNB Source: Martinis and Ljubaj (2017), data obtained from FINA.

13 How can investments do better in lifting potential growth?

14 The level of inves tments is not s o much of a problem, productivity much more s o Average TFP growth Contribution of capital accumulation to potential GDP Izvori: Eurostat; izračun HNB-a

15 Croatia s productivity growth weak, driven by a few highly productive firms Total factor productivity, 2000 = Highly skewed distribution of labour productivity in manufacturing ( average) BG CZ HR HU PO SI SK Baltics EU periphery RO EU periphery Italy, Spain, Portugal, Greece Source: AMECO Source: Lopez-Garcia et al. (2015.): Assessing European competitiveness: the new CompNet micro-based database, ESB WP N.1764

16 FDI inflows directed to non-tradeables, providing low contribution to exports Exports of goods and services/gdp, Positive correlation between FDI in tradable sector and exports LT HU LV SI EE PL HR RO SK CZ BG % Implicit yields on equity FDI Stock of FDI in industry/gdp, 2015 Euro area CEE5 Croatia Notes: Tradable sector defined as mining and quarrying, manufacturing, electricity, gas and water supply. Economic activities for BG and HR are based on NACE Rev.1 and for other countries on NACE Rev. 2 classification. Sources: WiiW; CNB calculations Note: Euro area excluding Ireland and Luxembourg. CEE5 includes CZ, HU, PL, SK, SI. Sources: Eurostat, CNB calculation.

17 Allocative efficiency increas ed modes tly during recession, but capital was increas ingly mis allocated Allocative efficiency of the economy increased during recession Dispersion of marginal revenue products of labour (MRPL) and capital (MRPK) Olley-Peakes gap in overall economy Note: Before the recession refers to the years between 2002 and 2008, while during the recession refers to the years between 2009 and Source: Valdec and Zrnc (2017) Source: Valdec and Zrnc (2017)

18 Poor resource allocation points to s tructural barriers The Great Recession had diverse effects on labour and capital allocation in Croatia increasing misallocation of capital was accompanied by a decline in misallocation of labour Growing misallocation of capital adversely affected productivity dynamics across all sectors This stresses the importance of the economy s ability to reallocate resources to more productive firms Labour and capital market regulation can have substantial effects on aggregate productivity

19 In 2015, regulatory environment and inability to collect claims were key obs tacles to doing business How do the listed problems affect your business operations? Regulations frequent changes 50% 39% 11% Small enterprises Medium-sized enterprises Regulations complexity and inconsistency Inability to collect claims Competition Production or labour costs Finding buyers Access to finance Availability of skilled staff Regulations frequent changes Regulations complexity and inconsistency Inability to collect claims Competition Production or labour costs Finding buyers 47% 43% 25% 21% 24% 18% 14% 31% 50% 47% 49% 27% 28% 24% 35% 30% 59% 56% 46% 46% 54% 35% 37% 34% 50% 43% 46% 17% 25% 16% 20% 28% 33% 14% 12% 16% 22% 26% 28% Access to finance 26% 39% 32% Availability of skilled staff 14% 31% 54% Makes business considerably more difficult Partialy makes business mode difficult No effect on business Do not know Source: Survey on the access to finance of SMEs, CNB and Ipsos (2015).

20 In 2017, regulatory environment s till a key obstacle, but labour shortage becoming more s evere How do the listed problems affect your business operations? Regulations complexity and inconsistency 58% 31% 9% Small enterprises Medium-sized enterprises Regulations frequent changes Availability of skilled staff Competition Production or labour costs Inability to collect claims Finding buyers Access to finance Regulations frequent changes Regulations complexity and inconsistency Inability to collect claims Production or labour costs Competition Access to finance 49% 38% 9% 33% 38% 22% 29% 62% 9% 27% 60% 14% 18% 71% 11% 13% 69% 16% 13% 42% 45% 59% 31% 8% 57% 31% 8% 37% 41% 19% 29% 52% 17% 22% 58% 18% 18% 44% 33% Finding buyers 18% 50% 29% Availability of skilled staff 17% 38% 39% Makes business considerably more difficult Partialy makes business mode difficult No effect on business Do not know Source: Survey on the access to finance of SMEs, CNB and Ipsos (2017).

21 A look forward - business environment and legis lation improvements are crucial What do you find important for your enterprise in the future? 100% 90% 80% 70% Access to EU funds Tax reliefs Improvement of business environment More flexible labour legislation % 50% 40% Measures to improve capital investments Loans or export guarantees Loan guarantees 30% 20% 10% 0% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2017 Small enterprises Medium-sized enterprises Source: Survey on the access to finance of SMEs, CNB and Ipsos (2015, 2017).

22 Much s cope to increas e utilization of EU funds 25 S hare of capital transfers from EU funds to final beneficiaries in gros s fixed capital formation (%) Czech R. Hungary Poland Slovenia Slovakia Croatia CEE11-Average Sources: ECB, Eurostat

23 Key takeaways Investment recovery underway, but still below pre-crisis level More investment into tradables Access to fina nce improved and fina ncing sources diversified However, structural impediments hinder stronger investment growth EU funds still an under-tapped potential for lifting investment growth

24 Thank you!

25 Business optimis m growing s teadily Business optimism Construction Trade Long term average = 100 Industry Services Sources: Ipsos; CNB seasonal adjustment