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 / 9 March

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

3 Inflation projection of the NBP based on the NECMOD model Outline: Introduction Changes between rounds Projection - 7 Uncertainty Changes between projection rounds Changes in the projection assumptions March projection compared to November projection

4 Inflation projection of the NBP based on the NECMOD model Changes in the projection assumptions External environment: similar forecasts of GDP growth abroad, lower inflation forecasts abroad, significantly lower energy commodity prices (especially crude oil prices). GDP data in the nd half of higher than expected in November projection, with higher domestic demand and weaker net exports (more favourable data partly due to the implementation of ESA and other methodological changes). Higher employment dynamics, lower growth of nominal wages in nd half of. Lower than expected domestic food prices inflation (the effect of stronger impact of high supply of agricultural commodities on food prices in Poland). Lower than expected energy prices inflation (slump in crude oil prices and other energy commodity prices on the global market, Energy Regulatory Office approved new tariffs for the sale and distribution of natural gas, which do not include an increase in prices assumed in the November projection).

5 Inflation projection of the NBP based on the NECMOD model March GDP projection compared to November projection y/y, % 9% % % Nov Mar 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 March CPI inflation projection compared to November projection y/y, % 9% % % Nov Mar 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 - 7 Uncertainty Projection for -7 Projection scenario Economic conditions abroad Aggregate demand Inflation

8 Inflation projection of the NBP based on the NECMOD model 8 Projection scenario Economic growth based on increasing consumption and private investment, while net exports remain negative. Negative net exports contribution to growth (higher imports dynamics due to high domestic demand and lower exports dynamics resulting from only a slight recovery abroad). Private consumption growth supported by good situation on the labour market and low price dynamics. In investment will lose momentum for a while due to the end of the process of drawing on EU funds under the 7- financial framework. Output gap closing gradually (negative since mid-). Low energy commodity prices on the global markets. Deflation in most quarters of, afterwards positive price dynamics however significantly below the inflation target. The CPI inflation growth in the longer term suppressed by low demand pressure and low cost pressure, moderate recovery in the global economy and low commodity prices on the global markets.

9 Inflation projection of the NBP based on the NECMOD model 9 Outline: Introduction Changes between rounds Projection - 7 Uncertainty Economic conditions abroad

10 Inflation projection of the NBP based on the NECMOD model GDP in the euro area in Q and Q GDP in Q (%, q/q).%.8%.%.%.%.% -.% -.% -.% -.8% EA DE FR IT ES NL Private consumption GFCF Net exports Public consumption Change in investories GDP th consecutive quarter of positive consumption contribution to GDP growth. Slowdown in the euro area due to low investment and weak export..8%.7%.%.%.%.%.%.%.% -.% -.% GDP growth (q/q) EA DE FR IT ES Q Q Q expectations for Q In Q GDP dynamics increased due to significantly higher growth in Germany than expected. Source: Eurostat, Bloomberg

11 Inflation projection of the NBP based on the NECMOD model Labour market in the euro area Decomposition of changes in the real wage fund.%.%.% real wages per employee employment Consumption contribution to GDP growth will probably remain positive in the coming years due to growing employment and real wages..% -.% -.%

12 Inflation projection of the NBP based on the NECMOD model Fiscal policy Forecast of changes in primary structural balance (p.p. of GDP) EA DE FR IT ES Interest rates on -years government bonds (%) ES FR. DE IT Sep- Oct- Nov- Dec- Jan- Feb- January ECB decide to implement sovereign QE Slowing down of fiscal consolidation will have a positive effect on the GDP dynamics in and. In FR and IT possible deeper tightening in the comming years as Stability and Growth Pact requirements were not met in these countries. Source: Ecowin, European Commision Market expectations regarding sovereign QE implementation in the euro area led to drop in government bond yields. A drop in financing costs will reduce a need for consolidation of the general governments in the euro area.

13 Inflation projection of the NBP based on the NECMOD model Investment outlays of enterprises % Output gap in the euro area % % % % % -% -% -% -% -% Profit share in France and Italy (%) France (RHS) Italy (LHS) Low capacity utilisation hamper corporate investment. Unfavourable investment financing conditions in some countries of the region: low profit level along with prevailing hovewer gradually eased restrictions on banking credit. Source: Eurostat, OECD

14 Inflation projection of the NBP based on the NECMOD model Investment outlays of enterprises long-term factors % 9% 9% A number of persons in the working age - Accoring to EC forecast (=%)... TFP (%, y/y) 8% 8% 7% EA.. 7% % % DE FR IT ES DE The factor which hamper investment activity in the euro area are unfavourable expectations regarding rate of return, influenced by demographic conditions as well as lowering TFP dynamics. Source: Eurostat, OECD

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

16 Inflation projection of the NBP based on the NECMOD model GDP abroad (similar) Euro area Germany % United States United Kingdom q 9q q q q q q q q -8 7q 7q % XI III q 9q q q q q q q q 7q7q

17 Inflation projection of the NBP based on the NECMOD model 7 Interest rates abroad (lower) Euro area United States United Kingdom 7 7 8q 9q q q q q q q q 7q 7q % XI III q 9q q q q q q q q 7q7q

18 Inflation projection of the NBP based on the NECMOD model 8 Outline: Introduction Changes between rounds Projection - 7 Uncertainty Aggregate demand Consumption demand Government demand Investment demand Foreign trade

19 Inflation projection of the NBP based on the NECMOD model 9 GDP and its components Q and Q q q GDP (y/y) (%). (.). (.) Domestic demand (y/y) (%).9 (.8). (.) Private consumption (y/y) (%). (.). (.) Public consumption (y/y) (%). (.9). (.) Gross fixed capital formation (y/y) (%) 9.9 (.) 8. (.) Exports (y/y) (%).8 (.).8 (.) Imports (y/y) (%) 7. (.9) 7. (.9) Net exports contribution (p.p.) -. (-.7) -. (-.) Values from the November projection are given in brackets (seasonally adjusted). Indicators with values higher than in the November projection are marked green, whereas indicators with lower values are marked red. Values for q are the estimates of NBP IE and constitutes the starting point for the March projection.

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

21 Inflation projection of the NBP based on the NECMOD model Labour market Q and Q q q ULC (y/y) (%).9 (.). (.) Labour productivity (y/y) (%). (.7). (.9) Gross wages (y/y) (%). (.8). (.) Total employment LFS (y/y) (%). (.). (.) Unemployment rate LFS (%) 8. (9.) 8. (9.) Participation rate (%). (.). (.) Values from the November projection are given in brackets (seasonally adjusted). Indicators with values higher than in the November projection are marked green, whereas indicators with lower values are marked red. Values for Q are the estimates of NBP IE and constitutes the starting point for the March projection.

22 7 8 9 Inflation projection of the NBP based on the NECMOD model High probability of finding a job, along with high number of vacancies Number of job offers (in tous.) Flows to and from employment subsidized (sa) unsubsidized (sa) 9 8 8% % % % % 8% % % % U->E (sa) (LHS) E->U (sa) (RHS) % %.%.%.%.%.% In there was a high increase in the number of job offers, both subsidized and unsubsidized. In three recent months we observe a levelling off of the previous upward trend of unsubsidized offers, their number remain at the high level. In the first three quarters of there was a significant increase in probability of finding a job, in line with growing number of vacancies. A the same time after significant slump in the probability of a job loss stabilized at a relatively low level.

23 Inflation projection of the NBP based on the NECMOD model Pronunced upward trend in the number of vacancies relative to the number of people looking for jobs, however low share of enterprises planning wage increases Real wages in the enterprises sector Share of enterprises planning wage increases % % share of enterprises (sa) 8% share of employees (sa) % % long-term average % % % % % -% % -% Labour market tighteness index (sa) (RHS) Real wages y/y (sa) (LHS) -% % In January stabilisation of nominal wages dynamics in the enterprises sector. Pronounced correlation between changes in real wages and labour market tighteness index which is calculated as a ratio of vacancies to the number of people looking for a job. Growing number of enterprises planning wage increases in Q, however the scale of increases is lower and relation between wages and labour productivity does not deteriorate.

24 II III IV I II III IV I II III IV I II III IV Inflation projection of the NBP based on the NECMOD model Low wage pressure (NBP Quick Monitor.), ULC Wage pressure Unit labour costs (ULC) (lower) y/y, % XI III 8 8 increased pressure no changes no pressure In Q wage pressure increased slightely, however remain low. Lower share of enterprises reporting no wage pressure, but still they constitute almost half of the population q 9q q q q q q q q 7q 7q

25 Inflation projection of the NBP based on the NECMOD model Labour market y/y, % Employment XI III % Unemployment rate (LFS) XI III q 9q q q q q q q q 7q7q 8q 9q q q q q q q q 7q7q y/y, % Gross wages XI III % Participation rate 7 XI III q 9q q q q q q q q 7q7q 8q 9q q q q q q q q 7q7q

26 Inflation projection of the NBP based on the NECMOD model Consumer sentiment Consumer confidence indicators Past and future financial situation of households current (s.a.) leading (s.a.) Current purchases and intentions of purchases Financial situation of households in recent months (sa) Financial situation of households in the next months (sa) Source: NBP data Major purchases currently made (s.a.) Major purchases in the next months (s.a.) Continuation of the upward trend of the most important consumer confidence indicators, despite some slowdown observed in February.

27 Consumption demand Inflation projection of the NBP based on the NECMOD model 7 Real gross disposable income (higher in the short term, similar in the long term) Private consumption (higher) y/y, % XI III q 9q q q q q q q q 7q 7q y/y, % XI III q 9q q q q q q q q 7q 7q

28 Inflation projection of the NBP based on the NECMOD model 8 Outline: Introduction Changes between rounds Projection - 7 Uncertainty General government expenditure

29 Inflation projection of the NBP based on the NECMOD model 9 EU transfers absorption (higher in the short term) 8 8 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 XI III q 9q q q q q q q q 7q7q

30 Inflation projection of the NBP based on the NECMOD model Public consumption and investment Public consumption Public investment y/y, % XI III y/y, % XI III q 9q q q q q q q q 7q 7q - - 8q 9q q q q q q q q 7q 7q

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

32 Inflation projection of the NBP based on the NECMOD model Investment demand Forecasts of demand, production and orders Capacity utilisation fixed component of demand (sa) orders (sa) demand (sa) production (sa) y/y (RHS) indicator (sa) indicator long-term average Source: NBP Quick Monitoring

33 Inflation projection of the NBP based on the NECMOD model Investment outlays of enterprises Planned changes in investment outlays within a quarter and in the current year, y/y (NBP Quick Monitor.) - - New investment indicator (share of enterprises planning to commence new investment within a quarter, NBP Quick Monitoring Survey) 7 9 new investment indicator sa y/y (RHS) annual plans annual plans (major change balance) quarterly plans quarterly plans (major change balance) - new investment indicator sa new investment indicator new investment indicator (mean value) share of enterprises which increase investment outlays in real terms F (mov. average)

34 Jun- Sep- Dec- Mar- Jun- Sep- Dec- Mar- Jun- Sep- Dec- Mar- Jun- Sep- Dec- Mar- Jun- Sep- Dec- Inflation projection of the NBP based on the NECMOD model Financing of new enterprises investment Share of enterprises which finance investment with their own funds and share of enterprises which finance it with bank loans. Supgroup of enterprises planning new investment. (NBP Quick Monitoring Survey) loans average own funds average Average interest rate on new loans denominated in zloty Relatively good financial condition of enterprises let them finance investment with their own funds. Interest rates, lowest in history, facilitates financing investment with bank loans. % % % 9% 8% 7% % % % households enterprises

35 Inflation projection of the NBP based on the NECMOD model Gross fixed capital formation (higher) GFCF enterprises GFCF housing GFCF public sector GFCF y/y, % XI III q q q q q q 7q 7q q 9q q q q q q q q 7q 7q

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

37 Inflation projection of the NBP based on the NECMOD model 7 Low exports dynamics, despite its high profitability Share of enterprises indicating exchange rate as an obstacle to their developement Indicator of export contracts and export forecast export contracts indicator (sa) export forecast indicator (sa) new export contracts indicator (sa) The value of euro exchange rate which make export unprofitable Source: NBP Quick Monitoring average +/-. std.dev. actual euro exchange rate

38 Inflation projection of the NBP based on the NECMOD model 8 Foreign trade Real effective exchange rate (weaker) XI III q 9q q q q q q q q 7q 7q

39 Inflation projection of the NBP based on the NECMOD model 9 Net exports contributions (lower) Net exports contribution (p.p.,rhs) Exports (y/y) (%) Imports (y/y) (%) p.p. XI III q 9q q q q q q q q 7q 7q - - 8q 9q q q q q q q q 7q 7q

40 Inflation projection of the NBP based on the NECMOD model GDP (higher) Consumption Change in inventories GDP Gross fixed capital formation Net exports y/y, % XI III q q q q q q 7q 7q - 8q 9q q q q q q q q 7q 7q

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

42 Inflation projection of the NBP based on the NECMOD model CPI inflation Q q CPI inflation (y/y) (%) -.7 (-.) Core inflation (y/y) (%). (.) Food price inflation (y/y) (%) -. (-.8) Energy price inflation (y/y) (%) -.7 (-.) Values from the November projection are given in brackets (seasonally adjusted). Indicators with values higher than in the November projection are marked green, whereas indicators with lower values are marked red.

43 Inflation projection of the NBP based on the NECMOD model Commodity prices Index of energy commodity prices (lower) Index of agricultural commodity prices (similar) USD, = XI III EUR, = XI III q 9q q q q q q q q 7q 7q.. 8q 9q q q q q q q q 7q 7q

44 Jan- May- Sep- Jan- May- Sep- Jan- May- Sep- Jan- May- Sep- Jan- May- Sep- Jan- May- Sep- Jan- May- Sep- Jan- May- Sep- Jan- May- Sep- Jan- May- Sep- Jan- May- Sep- Jan- May- Sep- Inflation projection of the NBP based on the NECMOD model Brent oil prices The global production, consumption and inventories of Brent oil Change in inventories (RHS) Global production (bn b/d) Global consumption (bn b/d) Brent oil prices forecasts (DE) Brent oil inventories forecasts (DE) Sep Oct Nov Dec Jan Feb Source: Department of Energy, USA Sep Oct Nov Dec Jan Feb

45 8q 8q 9q 9q q q q q q q q q q q q q q q 7q 7q 8q 8q 9q 9q q q q q q q q q q q q q q q 7q 7q Inflation projection of the NBP based on the NECMOD model Coal and natural gas prices on the global market. Richard s Bay coal prices (USD/t) Natural gas prices on the UK market (GBx/therm) Mar- Nov- Mar- Nov- Downward revision of both coal and natural gas prices in line with a slump in Brent oil prices (as these commodities constitute substitutes of oil in the energy production process). Lower coal prices also due to lower demand from China. Lower natural gas prices also due to relatively favourable weather conditions in the heating season in Europe and a high level of its inventories.

46 Inflation projection of the NBP based on the NECMOD model Terms of trade (significant improvement) XI III q 9q q q q q q q q 7q7q In the second half of, there was a marked drop in energy commodities and fuel prices. Global prices of processed goods in Q remained almost unchanged. Poland is an importer of fuels. In fuels and commodities accounted for 7% of imports value to Poland (in which crude oil was 9%) as compared to % exports value from Poland. The improvement in Poland's terms of trade in Q resulted, on the one hand, from a much steeper decline in the global prices of commodities and fuels in comparison with those of processed goods, on the other hand - from a higher share of fuels and other commodities in imports than in exports.

47 Jan- Apr- Jul- Oct- Jan- Apr- Jul- Oct- Jan- Apr- Jul- Oct- Jan- Apr- Jul- Oct- Jan- Inflation projection of the NBP based on the NECMOD model 7 Low cost pressure PPI inflation, y/y dynamics IMF index = PPI composite PPI excluding energy goods IMF energy index IMF index of manufacturing goods Source: CSO, NBP.

48 Jan- May- Sep- Jan- May- Sep- Jan- May- Sep- Jan-7 May-7 Sep-7 Jan-8 May-8 Sep-8 Jan-9 May-9 Sep-9 Jan- May- Sep- Jan- May- Sep- Jan- May- Sep- Jan- May- Sep- Jan- May- Sep- Jan- Inflation projection of the NBP based on the NECMOD model 8 Inflation expectations, months horizon 8. The range of acceptable deviations from the NBP inflation target Current inflation Consumers - objectified measure Analists of the financial sector - median Consumers - alternative subjectified measure Inflation target Enterprises - objectified measure Consumers - main subjectified measure

49 Feb- Mar- Apr- May- Jun- Jul- Aug- Sep- Oct- Nov- Dec- Jan Inflation projection of the NBP based on the NECMOD model 9 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 Source: NBP estimates ULC in the euro area Impact of base effect on HICP, related to price changes of energy and unprocessed food (p. p.) energy unprocessed food cumulative impact of base effect from January. -. Source: NBP estimates based on Eurostat data Source: Eurostat 9

50 Inflation projection of the NBP based on the NECMOD model Risk of sustained deflation in the euro area. year swap rate, in years time HICP in the euro area (y/y) and its main components..%.%.%.%.% -.% -.% -.% Services Manufacturing goods Processed food Unprocessed food Energy HICP Index of manufacturing producers in the euro area (year =) 9 PPI PPI excluding energy

51 Inflation projection of the NBP based on the NECMOD model Inflation in the CEE countries and the euro area HICP 7 Poland Euro area Czech Republic Hungary Lithuania HICP Food and non-alcoholic beverages - HICP excluding food, energy, alcohol and tobacco - - HICP Energy - - -

52 Inflation projection of the NBP based on the NECMOD model 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 7q 7q q 9q q q q q q q q 7q 7q

53 Inflation projection of the NBP based on the NECMOD model Import prices Import prices (lower) y/y, % XI III q 9q q q q q q q q 7q 7q Import prices (excluding oil and natural gas prices) (lower) y/y, % XI III q 9q q q q q q q q 7q 7q 8 -

54 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 9q q q q q q q q 7q 7q - - 8q 9q q q q q q q q 7q 7q

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

56 Inflation projection of the NBP based on the NECMOD model Outline: Introduction Changes between rounds Projection - 7 Uncertainty Uncertainty Risk factors Fan charts

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

58 Inflation projection of the NBP based on the NECMOD model 8 Risk area Description Impact Scale of impact Prolonged period of deflation in the euro area due to a combination of unfavourable factors: a wage-price spiral in the economy, External environment deeper than currently assessed structural weakness in the euro area, leading to prolonged economic slowdown, Inflation GDP ** unanchoring of inflation expectations and the growth of wage elasticity, lower energy commodity prices, especially crude oil. Potential disruptions in the oil supply on the global markets: scale of shale oil extraction and its export by US, Brent oil prices on the global markets actions udertaken by the OPEC countries, uncertain political situation in Iraq and Libya. Inflation GDP ** Global economy growth outlook (especially in emerging countries and in the euro area).

59 Inflation projection of the NBP based on the NECMOD model 9 Risk area Description Impact Scale of impact Faster growth of domestic demand, especially in the shortterm horizon: deminished uncertainty associated with the conflict between Russia and Ukraine, Domestic demand in the Polish economy improved business and consumer sentiment due to a stronger-than-assumed impact of the ECB quantitative easing on economic activity in the euro area, boost in consumption at cost of a slower increase in the savings rate, Inflation GDP ** higher investment activity of enterprises. In the longer term growth supported by the implementation of The Investment Plan of the European Commission for - 7. Conclusions Inflation GDP

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

61 Inflation projection of the NBP based on the NECMOD model CPI inflation projection March 9% % % central path inflation target q q q q q q q q q q 7q - 7q below,% below,% below,% below central path in the range (,-,%) q,,,,, q,,,,, q,9,,,, q,8,9,99,,7 q,7,88,97,, q,9,88,97,,8 q,,8,9,, q,,8,9,,9 7q,,8,9,, 7q,,8,9,, 7q,,77,9,, 7q,,7,89,,

62 Inflation projection of the NBP based on the NECMOD model GDP projection March 8 7 9% % % central path q q q q q q q q q q 7q 7q

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