Inflation projection of Narodowy Bank Polski based on the NECMOD model

Transcription

1 Economic Institute Inflation projection of Narodowy Bank Polski based on the NECMOD model Warsaw / November

2 Inflation projection of the NBP based on the NECMOD model Outline: Introduction Changes between rounds Projection - Uncertainty Outline Changes between projection rounds Projection - Uncertainty

3 Inflation projection of the NBP based on the NECMOD model Outline: Introduction Changes between rounds Projection - Uncertainty Changes between projection rounds Changes in the projection assumptions November projection compared to July projection

4 Inflation projection of the NBP based on the NECMOD model Changes in the projection assumptions External environment: forecast of GDP growth abroad revised downwords (especially in the euro area), significantly lower agricultural and energy commodity prices. GDP data in Q lower than expected in July projection, with comparable domestic demand and weaker net exports. Lower absorption of funds from the - european financial perspective due to changes in National Road Construction Programme. Lower than expected food prices inflation (due to favourable agrometeorological conditions and the Russian embargo on fruits, vegetables, meat, fish and dairy). Lower expectations for the growth of fuel prices (falling oil prices on the global markets).

5 Inflation projection of the NBP based on the NECMOD model November GDP projection compared to July projection y/y, % 9% % % Jul Nov 7 7. Change in inventories Gross fixed cap. formation Private consumption Net exports Public consumption GDP q q q q q q q q q q q - q -. -.

6 Inflation projection of the NBP based on the NECMOD model November CPI inflation projection compared to July projection y/y, % 9% % % Jul Nov inflation target Core inflation Energy prices Food prices CPI inflation q q q q q q q q q q q - q -. -.

7 Inflation projection of the NBP based on the NECMOD model 7 Outline: Introduction Changes between rounds Projection - Uncertainty Projection for - Projection scenario Economic conditions abroad Aggregate demand Inflation

8 Inflation projection of the NBP based on the NECMOD model Projection scenario Substantial deterioration in economic situation abroad (slowdown in the euro area, exacerbation of the Russian-Ukraine conflict). In consequence deterioration in foreign trade balance (weaker demand for Polish exports) and lower growth of private sector investment (depressed sentiments in the domestic corporate sector). Slowdown in Polish economy mitigated by the increase in private consumption due to the relatively sound labour market situation. The slow pace of closing of the output gap (negative since the second half of ). Relatively stable, low prices of commodities in the global markets. Low inflation in as a result of the economic slowdown, favourable weather conditions, Russian embargo and Energy Regulatory Office regulatory decisions. Since gradual, moderate increase in CPI dynamics, however CPI inflation remains below %.

9 Inflation projection of the NBP based on the NECMOD model 9 Outline: Introduction Changes between rounds Projection - Uncertainty Economic conditions abroad

10 Inflation projection of the NBP based on the NECMOD model Q GDP data in the euro area GDP in Q (%, q/q) EA DE FR IT ES GDP dynamics in DE, FR, IT below the market expectations Declining investment demand (by.% q/q ) due to a drop in construction investment (the base effect), as well as low expenditure on other fixed assets Source: Eurostat, Bloomberg Non-construction GFCF (7Q=) GDP Market expectations EA DE ES FR IT 9 In Q low expenditure on non-construction gross fixed capital formation in three biggest economies of EA (slump in DE and IT, only a slight increase in FR)

11 Inflation projection of the NBP based on the NECMOD model Weak external demand Global trade s growth and exports of goods from the euro area (constant prices y/y) Dynamic s decomposition of EA exports of goods (current prices) % Global trade's growth - Export of goods EA Export within EA (p.p.) Export EA (y/y, %) Export outside EA (p.p.)

12 Inflation projection of the NBP based on the NECMOD model Emerging economies GDP growth, (%, y/y) China Russia Brazil India 9 7 I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV 9 7 actual data Bloomberg forecast

13 Inflation projection of the NBP based on the NECMOD model Forecasts revisions IMF Bloomberg IMF Bloomberg Jul- Oct- Difference Jul- Oct- Difference Jul- Oct- Difference Jul- Oct- Difference USA UK EA DE FR IT

14 Inflation projection of the NBP based on the NECMOD model GDP abroad (lower in the short term, similar in the long term) euro area Germany y/y,% USA United Kingdom q q 9q q q q q q q - q q y/y, % VII XI q q 9q q q q q q q qq

15 Inflation projection of the NBP based on the NECMOD model Interest rates abroad (lower) % Euro area USA United Kingdom 7 7 7q q 9q q q q q q q q q % VII XI q q 9q q q q q q q qq

16 Inflation projection of the NBP based on the NECMOD model Outline: Introduction Changes between rounds Projection - Uncertainty Aggregate demand Consumption demand Government demand Investment demand Foreign trade

17 Inflation projection of the NBP based on the NECMOD model 7 GDP and its components Q and Q q q GDP (y/y) (%). (.7). (.) Domestic demand (y/y) (%). (.). (.) Private consumption (y/y) (%). (.). (.) Public consumption (y/y) (%). (.).9 (.) Gross fixed capital formation (y/y) (%). (.). (7.9) Exports (y/y) (%).9 (7.). (7.) Imports (y/y) (%) 9. (.9).9 (.9) Net exports contribution (p.p.) -. (-.) -.7 (-.) Values from the July projection are given in brackets (seasonally adjusted). Indicators with values higher than in the July projection are marked green, whereas indicators with lower values are marked red. Values for Q are the estimates of IE and constitutes the starting point for the November projection.

18 Inflation projection of the NBP based on the NECMOD model Outline: Introduction Changes between rounds Projection - Uncertainty Consumption demand

19 Inflation projection of the NBP based on the NECMOD model 9 Labour market Q and Q q q ULC (y/y) (%). (.). (.) Labour productivity (y/y) (%). (.).7 (.) Gross wages (y/y) (%). (.). (.) Total employment LFS (y/y) (%).7 (.). (.) Unemployment rate LFS (%) 9. (9.9) 9. (9.7) Participation rate (%). (.). (.) Values from the July projection are given in brackets (seasonally adjusted). Indicators with values higher than in the July projection are marked green, whereas indicators with lower values are marked red. Values for Q are the estimates of IE and constitutes the starting point for the November projection.

20 Inflation projection of the NBP based on the NECMOD model Stable employment forecasts, no wage pressure (NBP Quick Monitor.) Employment forecasts Employment forecasts for sectors Share of enterprises planning wage increases Wage pressure

21 Inflation projection of the NBP based on the NECMOD model Labour market y/y, % Employment VII XI % Unemployment rate (LFS) VII XI - - 7q q 9q q q q q q q qq 7q q 9q q q q q q q qq y/y, % Gross wages VII XI % Participation rate 7 VII XI 7 7q q 9q q q q q q q qq 7q q 9q q q q q q q qq

22 Inflation projection of the NBP based on the NECMOD model Consumer sentiment and retail sales Consumer confidence indicators current (s.a.) leading (s.a.) Current purchases and intentions of purchases Major purchases currently made (s.a.) Major purchases in the next months (s.a.) Retail sales y/y S.A. Trend Index = (lhs) Source: NBP data Improvement in consumer sentiment in September, after -month deterioration period. The index of intended major purchases in the next months has stabilized since Q

23 Consumption demand Inflation projection of the NBP based on the NECMOD model Real gross disposable income (similar) Private consumption (lower) y/y, % VII XI q q 9q q q q q q q q q y/y, % VII XI q q 9q q q q q q q q q

24 Inflation projection of the NBP based on the NECMOD model Outline: Introduction Changes between rounds Projection - Uncertainty Government demand

25 Inflation projection of the NBP based on the NECMOD model EU transfers absorption (lower) Human capital Agricul. Fund for Rural Dev. Other expend., mainly enterprises Public sector current expenditure Common Agricultural Policy Public sector capital investment EU transfers EUR bn EUR bn VII XI q q 9q q q q q q q qq

26 Inflation projection of the NBP based on the NECMOD model Public consumption Public consumption y/y, % VII XI q q 9q q q q q q q q q

27 Inflation projection of the NBP based on the NECMOD model 7 Outline: Introduction Changes between rounds Projection - Uncertainty Investment demand

28 Inflation projection of the NBP based on the NECMOD model Investment demand Forecasts of demand, production and orders demand (SA) production (SA) orders (SA) Forecasts and assessment of exports conditions index of exports contracts (sa) index of exports forecasts (sa) index of new exports contracts (sa) Source: NBP Quick Monitoring Survey data

29 Inflation projection of the NBP based on the NECMOD model 9 Investment outlays of enterprises Estimated value of newly started investments cumulative data, current prices, y/y (F/I- CSO) New investment indicator (share of enterprises planning to commence new investment within a quarter, NBP Quick Monitoring Survey)

30 q q q q q q q q 7q 7q q q 9q 9q q q q q q q q q q Value (PLN bn) Number (thous.) Inflation projection of the NBP based on the NECMOD model Investment demand Housing construction New housing loan contracts : value and number of contracts dwellings for which permits have been granted y/y,% dwellings in which construction has begun value, PLN number, PLN value, foreing total number m m m 7m m 9m m m m m m Source: CSO data Source: ZBP

31 Inflation projection of the NBP based on the NECMOD model Gross fixed capital formation (lower in short and medium term) GFCF enterprises GFCF housing GFCF public sector GFCF y/y, % VII XI q q q q q q q q q q 9q q q q q q q q q

32 Inflation projection of the NBP based on the NECMOD model Outline: Introduction Changes between rounds Projection - Uncertainty Foreign trade

33 Inflation projection of the NBP based on the NECMOD model Lower dynamics of Polish exports Polish exports by countries (current prices, EUR, y/y) Other countries Ukraine Russia Other EU countries Euro area Total Deeper slump in exports to Russia and Ukraine. Decreasing exports to UE countries due to the economic slowdown in UE, a drop in sales of final GVC goods intended for the Russian market and the Russian embargo on food, covering also UE countries. -

34 Inflation projection of the NBP based on the NECMOD model Foreign trade Real effective exchange rate (weaker) VII XI q q 9q q q q q q q q q

35 Inflation projection of the NBP based on the NECMOD model Net exports contributions (higher in the short term) Net exports contributions (p.p., RHS) Exports (y/y) (%) Imports (y/y) (%) p.p. VII XI q q 9q q q q q q q q q - - 7q q 9q q q q q q q q q

36 Inflation projection of the NBP based on the NECMOD model GDP (lower) Consumption Change in inventories GDP Gross fixed capital formation Net exports y/y, % VII XI q q q q q q q q - 7q q 9q q q q q q q q q

37 Inflation projection of the NBP based on the NECMOD model 7 Outline: Introduction Changes between rounds Projection - Uncertainty Inflation

38 Inflation projection of the NBP based on the NECMOD model CPI inflation Q and Q q q CPI inflation (y/y) (%). (.) -. (-.) Core inflation (y/y) (%). (.). (.) Food price inflation (y/y) (%) -. (-.) -.9 (-.) Energy price inflation (y/y) (%) -. (-.) -. (-.) Values from the July projection are given in brackets (seasonally adjusted). Indicators with values higher than in the July projection are marked green, whereas indicators with lower values are marked red.

39 Inflation projection of the NBP based on the NECMOD model 9 Commodity prices Index of energy commodity prices (lower) Index of agricultural commodity prices (lower) USD, = VII XI USD, = VII XI q q 9q q q q q q q q q.. 7q q 9q q q q q q q q q

40 Inflation projection of the NBP based on the NECMOD model Brent oil prices The global production, consumption and inventories of Brent oil 7 7 Change in inventories (RHS) Global production (bn b/d) Global consumption (bn b/d) A decrease in Brent oil prices in due to lower consumption, which is the effect of lower global economic growth as well as the increase in shale oil extraction in the USA. In October USA Department of Energy (DE) lowered its oil production forecast for expecting OPEC to reduce its extraction (by tous. b/d as compared to ). Moreover Department of Energy envisages the global demand improvement in, which combined with lower production leads to a decrease in oil inventories and a gradual increase in oil prices. Oil prices index based on futures contracts was lowered as compared to the July projection assumptions, however it is following the upward trend, in line with the forecasts of DE.

41 / / /7 / / / /7 / / /7 / / / /7 / / / / / / / / /7 / / / /7 /7 7/ /9 9/ / / / / (est.) / (fcst.) /7 7/ /9 9/ / / / / (est.) / (fcst.) Inflation projection of the NBP based on the NECMOD model Agricultural commodities (favourable supply conditions and stable production costs) - - Grains market Oilseeds market Meat market Balance (production - consumption) Output (right axis) Demand (right axis) Average production - (right axis) 9 Balance (production - consumption) Output (right axis) Demand (right axis) Average production - (right axis) 9 (szac.) est. (prog.) fcst. (prog.) fcst. Balance (production - consumption, in thousand tonnes) Supply (in thousand tonnes, right axis) Demand (in thousand tonnes, right axis) Average production (-, in thousand tonnes, right axis) IMF World Energy Index Green Market Fertilizer Price DAP US Gulf Export Baltic Dry Index Soybean Meal Futures Feed Wheat Futures

42 / / / / / / / / / / / / / / 7/ / / / / / / / / / / / / / / 7/ / / / / / / / / / / / / / / 7/ / / / / / / / / / / / / / / 7/ Inflation projection of the NBP based on the NECMOD model Stable agricultural commodity prices expectations I VII 999 I VII I VII I VII I VII I VII I VII ICSR NBP ICSR (cut-off: NBP (cut-off: -9-, --, V =) = ) I VII I VII 7 I VII I VII 9 I VII I VII I VII I VII I VII I VII I VII I VII 7 Historic realization ICSR NBP 9% Confidence interval ICSR NBP forecast ICSR NBP forecasts (cut-off: -9-) Wheat Rapeseed Hog Skimmed milk powder Butter Cocoa Coffee Sugar Frozen orange juice Potatoes (right axis)

43 / / / / / / /7 / /9 Inflation projection of the NBP based on the NECMOD model Food and non-alcoholic beverages inflation vs - average Food and nonalcoholic beverages I II III IV V VI VII VIII IX X XI XII - Bread and cereals Meat Vegetables Sugar, jam, honey, chocolate and confectionery I II III IV V VI VII VIII IX X XI XII : average I II III IV V VI VII VIII IX X XI XII I II III IV V VI VII VIII IX X XI XII I II III IV V VI VII VIII IX X XI XII Prognostic groups contributions to the difference between the average path of - and CPI path of the Others - Sugar, jam, honey, chocolate and confectionery - Vegetables - Fruit - Milk, cheese and eggs - Meat Bread and cereals

44 Inflation projection of the NBP based on the NECMOD model Core inflation % % - - Core inflation measures (%, y/y) Variability interval of core inflation indices Inflation excluding most volatile prices Inflation excluding food and energy prices Iinflation excluding administered prices % trimmed mean Decomposition of core inflation (CPI excl. food and energy prices, y/y) Core inflation Services Goods Excise goods Other goods Dwelling maintenance Telecommunication Restaurants and hotels Other services

45 Inflation projection of the NBP based on the NECMOD model PPI Inflation Deceleration of the downward trend of the producer price index y/y dynamics (RHS) Index = S.A. Trend PPI y/y domestic market PPI y/y export market % % % % % % -% -% In recent months there has been a deceleration of the downward trend of the producer price index, which is lasting for over years. The dynamics of producer price index in September diminished slightly by. p.p. to -.% y/y. In October, the dynamics of PPI on exports market production was lower than PPI composite (y/y) by. p.p. The dynamics of the domestic market production PPI y/y (-.% y/y, IE forecast for September) was higher than the dynamics of PPI composite y/y by. p.p. - Source: CSO, IE.

46 Inflation projection of the NBP based on the NECMOD model Low cost pressure IMF index = PPI = IMF energy index Manufacturing commodities index PPI - domestic market

47 / / / / / / /7 / /9 / / / Inflation projection of the NBP based on the NECMOD model 7 Inflation in the euro area Positive, however low ULC growth, v. slow closing of the output gap and base effect Output gap estimates in the euro area.. Impact of base effect on HICP, related to price changes of energy and unprocessed food (p. p.) Source: IMF,. WEO. ULC in the euro area energy unprocessed food cumulative impact of base effect total base effect - 9 7

48 Inflation projection of the NBP based on the NECMOD model Inflation in the CEE countries and the euro area HICP Poland euro area Czech Republic Hungary Lithuania HICP Food and non-alcoholic beverages HICP excluding food, energy, alcohol and tobacco HICP Energy

49 Inflation projection of the NBP based on the NECMOD model 9 Potential output Population Public capital Labour market Private capital TFP Potential output Output gap (% potential output) GDP (y/y) (%) Potential output (y/y) (%) q q q q q q q q q q 9q q q q q q q q q - -

50 Inflation projection of the NBP based on the NECMOD model Import prices and unit labour costs Import prices (excluding oil and natural gas) (lower) Unit labour costs (lower in medium and long term) y/y, % VII XI y/y, % VII XI q q 9q q q q q q q q q - - 7q q 9q q q q q q q q q

51 Inflation projection of the NBP based on the NECMOD model Domestic inflation y/y, % Food prices inflation (%) Energy prices inflation (%) y/y, % CPI inflation (%) Core inflation (%) q q 9q q q q q q q q q - - 7q q 9q q q q q q q q q

52 Inflation projection of the NBP based on the NECMOD model CPI inflation (y/y, %) Core inflation Energy prices Food prices CPI inflation y/y (%) VII XI q q q q q q q q q q 9q q q q q q q q q

53 Inflation projection of the NBP based on the NECMOD model Outline: Introduction Changes between rounds Projection - Uncertainty Uncertainty Risk factors Fan charts

54 Inflation projection of the NBP based on the NECMOD model Outline: Introduction Changes between rounds Projection - Uncertainty Risk factors

55 Inflation projection of the NBP based on the NECMOD model Scale of recovery abroad and in Poland Stagnation in the euro area (lack of improvement in competitiveness, ineffective actions aimed at stimulating lending, limited possibilities of ECB monetary policy easing) leading to decoupling of inflation expectations, deeper slowdown in emerging economies, especially in China, growing tensions in UE-Russia relations, deterioration in business sentiment in Europe, slower growth of global energy and agricultural commodity prices pessimistic scenario Higher economic growth abroad (in the euro area, in particular in Germany, in USA, in China), the effect of the Russia-Ukraine conflict on the economy wears off, faster rebuilding of investment and consumption optimistic scenario CPI inflation (y/y, %) Growth of GDP (y/y, %) - - q q q q q q q q q q q q q q q q

56 Inflation projection of the NBP based on the NECMOD model Consumers and producers sentiments in the euro area PMI in the euro area Composite Manufacturing Services Consumers sentiments reading market expectations (reading over the median) market expectations (reading below the median) m m m m m m m m m Readings of PMI indicate a deterioration in situation both in manufacturing and in services sectors. Since the second half of consumers sentiments diminish, subsequent readings are below the market expectations median. Source: Eurostat, Bloomberg

57 Inflation projection of the NBP based on the NECMOD model 7 Euro area enterprises access to loans % % MFI loans for the private sector in the euro area (% GDP) Credit conditions in the euro area (BLS survey)* loans for enterprises % % 9% % residential loans consumption loans 7% % - *positive values mean tightening of credit policy, negative values easing. Banks restrain from stronger credit policy easing due to the uncertainty associated with the review of banks assets conducted by ECB. The structural problems of the banking sector in EA might be underestimated. The possible prolonging of EA banks deleveraging process might decrease the effectiveness of ECB action aimed at stimulating lending, which may hamper the economic recovery in the euro area.

58 m m m m m m m7 m m9 m Inflation projection of the NBP based on the NECMOD model Euro area conditions of public debt financing Public debt in (% GDP).. Spread against the German Y bonds FR IT ES PT IE GR IT PT IE ES FR EA. Very low bonds profitability in some countries of EA (close to historically low levels), despite unsolved fiscal and structural problems of these economies according to IMF these assets valuation substantially diverges from the fundamental factors. Possible change in financial markets risk evaluation may lead to higher pressure on fiscal tightening in the euro area, deteriorating financing conditions for banks and enterprises.

59 7 9 Inflation projection of the NBP based on the NECMOD model 9 Brent oil prices Brent oil prices (USD/b) % % % % monthly changes (lhs) average monthly Brent oil prices (rhs) Since July average monthly Brent oil prices are decreasing due to: low demand (conditioned on the global economic growth), high supply (the increase in extraction of shale oil in USA; lower political risk for the supply of oil from Iraq and Libya) -% -% The forecasts of the US Department of Energy which indicate the rise in oil prices in are based on the assumptions concerning the global economic growth. -%

60 Inflation projection of the NBP based on the NECMOD model The increase in probability of recession and deflation in the euro area Probability of recession (%) Probability of deflation (%) Euro area USA Japan Asian emerging markets Latin America Rest of the world Euro area USA Japan Asian emerging markets Latin America Rest of the world October WEO IMF, forecast for Q-Q April WEO IMF, forecast for Q-Q October WEO IMF, forecast for Q-Q April WEO IMF, forecast for Q-Q

61 Inflation projection of the NBP based on the NECMOD model Pessimistic scenario economic conditions abroad y/y, % GDP abroad pessim. XI q q 9q q q q q q q qq y/y, % Value added deflator abroad.. pessim. XI q q 9q q q q q q q qq Global index of agricultural commodity USD, = prices. pessim. XI q q 9q q q q q q q qq Global index of energy commodity prices USD, =. pessim. XI q q 9q q q q q q q qq

62 Inflation projection of the NBP based on the NECMOD model Pessimistic scenario GDP Consumption Change in inventories GDP Gross fixed capital formation Net exports y/y, % pessim. XI q q q q q q q q - 7q q 9q q q q q q q q q

63 Inflation projection of the NBP based on the NECMOD model Pessimistic scenario inflation Core inflation Energy prices Food prices CPI inflation y/y (%) pessim. XI q q q q q q q q q q 9q q q q q q q q q

64 Inflation projection of the NBP based on the NECMOD model Outline: Introduction Changes between rounds Projection - Uncertainty Fan charts

65 Inflation projection of the NBP based on the NECMOD model CPI inflation projection November 9% % % central path inflation target below,% below,% below,% below central path in the range (,-,%) - - q..... q q q q q q q q q q q q q q q q q q q q

66 Inflation projection of the NBP based on the NECMOD model GDP projection November 7 9% % % central path q q q q q q q q q q q q

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