Macroeconomic Projections for 2014 and 2015

Transcription

1 Macroeconomic Projections for 2014 and 2015 Anita Angelovska-Bezovska Vice-Governor March 2014

2 CONTENTS Process of macroeconomic projections and monetary policy decision-making Macroeconomic projections for 2014 and 2015 External assumptions Baseline macroeconomic scenario Recent developments, comparison with the projection and influence on the future projection cycle Summary

3 Macroeconomic projections main features Prepared by the Monetary Policy and Research Department (MPR) within the NBRM. Based on economic models, professional knowledge and opinion, and microdata (surveys). Each session of the macroeconomic projection consists of three basic steps: Step one: Defining of the main exogenous assumptions of the projections (economic growth and inflation of the most important trading partners, prices of primary commodities, etc.); Step two: Preparation of the projections for RM (economic growth, inflation, balance of payments and monetary sector); Step three: Preparation of the Quarterly Report, explaining the key assumptions, projections, divergence from the previous projection cycle and projection risks. - Published within the Quarterly Report of the NBRM (twice a year, in April and October).

4 Why are the macroeconomic projections important? NBRM Councilthe highest management and decision-making body in the NBRM Strategic decisions on the set-up and the monetary policy guidelines 9 members (4 executive and 5 non-executive) 7-year term of office, with the right of re-election it meets as required, but not less than 10 times per calendar year. decisions are adopted by simple majority Operational Monetary Policy Committee (KOMP) composition: top management of the NBRM regular meetings, on a weekly basis Macroeconomic projections are the key element in the monetary policy decisionmaking How does the NBRM Council/КOMP make decisions? The relevant departments present the latest economic and financial developments, the macroeconomic projections and propose the monetary policy set-up for the following period; Discussion and perceptions of the KOMP/NBRM Council members regarding the information presented by the relevant departments; Discussion and deciding on the monetary policy set-up.

5 Communication of the monetary policy decisions Good presentation of the monetary policy decision is essential for effective monetary transmission What: decisions with respect to the level of the policy rate/changes in the set-up of the NBRM s monetary instruments, as well as the reasons. When: immediately after the meeting of the NBRM Council/KOMP. How: through press releases and press conference of the Governor of the NBRM. The latest macroeconomic projections were developed in October 2013, while the next will be made in April 2014.

6 Macroeconomic projections for 2014 and 2015 external environment Continuing trend of gradual improvement in the global economic environment is expected, without significant pressures on the prices... stimulating further the monetary policy in advanced economies for recovery support......however, despite the global favorable trends, the recovery will still be accompanied with some uncertainty and risks.

7 Foreign effective demand 2.5 Foreign effective demand (annual growth rates, in %) Decomposition of foreign effective demand growth (weighted contributions to annual foreign effective demand growth rates) April 2013 October Slovenia Croatia Bulgaria Serbia Netherlands Italy Spain Greece Germany Belgium

8 Foreign effective demand After the foreign effective inflation moderately accelerated in 2013, its slowdown and stabilization in 2014 and 2015, respectively, is expected. 5.0 Foreign effective inflation (annual rates, in %) 3.5 Decomposition of foreign effective inflation (weighted contributions to annual foreign effective inflation rates) Bulgaria Austria Slovenia Serbia Italy Croatia Greece April 2013 October Germany France

9 World prices of primary commodities Lower prices of primary products in 2013, expecting certain upward movements in 2014 (food); Oil and food prices developments: positive effect on the balance of payments and inflation; Unfavorable trend with metals prices: negative implications on the balance of payments. annual changes, % Exchange rate USD/EUR (increase = appreciation of EUR) Crude oil (USD per barrel) Crude oil (EUR per barrel) Export metal price index (EUR based, 2005=100) Nickel price Copper price Wheat price Corn price (USD per metric tonne) (USD per metric tonne) (EUR per metric tonne) (EUR per metric tonne) Forecast October Forecast April

10 Macroeconomic projections inflation The inflation decreased to 2.9% in 2013 and it will reduce to about 2% in period; Downward pressures by supply side, having in mind principally downward movements with the primary products; Gradual intensification of demand pressures, in line with the expectations for gradual closing of output gap. The performances for 2013, on average, match the expectations, although the inflation in the last months of the year is lower than expected downward risks for the projection for Output gap and inflation (in %) Output gap Inflation

11 Macroeconomic projections GDP Moderate recovery of the economy in 2013 and gradual growth intensification in 2014 and 2015; Faster closure of the negative output gap (in the first half of 2014) The performance for 2013 meets the expectations, while the risks for 2014 mainly relate to external factors; however, the growth structure differs from the estimations GDP (annual growth rates, in %) Output gap (in %) April 2013 Оctober April 2013 October 2013

12 Macroeconomic projections GDP components Strong impulse from exports (mainly owing to the new FDI capacities) and investments (public and private), as well as recovery of the consumption, in conditions of positive transmission effects on the labor market and solid growth in the household loans; Positive contribution of the domestic demand, while negative of the net export (high dependence of the exports and investments on the imports. Annual growth rates (in %, seasonally adjusted data) period GDP Household final consumption General government final consumption Gross capital formation Export Import Domestic demand Net Export Contributions to annual growth (in p.p.) Household General Gross period GDP final consumption government final consumption capital formation Export Import Domestic demand Net Export

13 Shares of real GDP components (in %) Private cons. Government cons. Investment Export Import Gross fixed capital formation structure by type of ownership (in current prices, in %) state 34 private 29 28

14 1 Contributions of individual sectors of activities to the change of total number of employees in the period 2013/2008 (in p.p) 39 Unemployment rate (in %) public administration financial intermediation transport and communications hotels and restaurants trade construction industry employed agriculture total economy (in %) 25 Q Q3 Q Q3 Q Q3 Source: State Statistical Office, Labor Force Survey. Q Q3 Q Q3 Q Q3

15 Macroeconomic projections balance of payments current account Assessed maintenance of the current account deficit in 2013 at the level of 2012 and gradual deterioration in 2014 and More significant narrowing of the trade balance in 2013, as a result of the reduced energy import pressures; Slight widening of the trade balance in 2014 and 2015, given more evident import pressures by demand for investments and raw materials; Moderate decrease in the share of the private transfers in GDP until 2015; The deficit on the current account is smaller than expected for 2013, possibility for more favorable developments in 2014, as well. which creates Current account balance % of GDP of which: Trade balance Non-energy trade balance Energy trade balance Current transfers, net

16 European Union Bulgaria Germany Greece Italy Croatia Kosovo BiH Serbia Other countries Macroeconomic projections Projections of the balance of payments current account Export diversification by category and trading partner Share of export by categories in overall export (in %) 8 7 Share of export by trading partners in overall export (in %) 100% 90% 80% 70% Machinery and transport equipment % 50% 40% 30% 20% 10% 0% Crude materials, inedible, except fuels Mineral fuels, lubricants and related materials Manufactured goods classified by materials Miscellaneous manufactured articles Chemical Products Food and beverages Chemical Products Machinery and transport equipment

17 Macroeconomic projections capital inflows After the decelerated increase in 2013, capital inflows are expected to intensify in 2014 and 2015 (foreign direct investments and foreign borrowings of the Government for infrastructure); After the decrease in the foreign reserves in 2013, they are expected to increase in 2014 and 2015, and accordingly they would range nearly the adequate level. The net capital inflows are lower than expected for 2013, registering mainly downward risks for 2014 and related primarily to the perceptions of the foreign investors Capital flows, net Foreign direct investment in EUR million (left scale) % of GDP (right scale) millions of EUR (left scale) as % of GDP (right scale)

18 Macroeconomic projections structure of the foreign direct investments Source: NBRM. Direct investments, by activity (in EUR million) Mining and quarring Manufacturing Electricity, gas, steam and air conditioning supply Construction Transportation and storage Financial and insurance activities Trade Other The trend of larger inflows in the tradable goods segment continues, having positive impact on the foreign trade.

19 Macroeconomic projections credit growth In 2013, the credit growth equals 5.2%, expecting moderately intensified lending in the following two years by 6.4% and 8.5%, respectively, given further increase in the deposits and available foreign sources of financing; The uncertain global environment, the banks risk perceptions and the business strategies of the European banking groups present on the domestic market, as well, reflected on the credit policy by a larger vigilance of the domestic banking sector; Higher credit and deposit growth in 2013 and at the beginning of 2014 than expected Total loans (annual growth rates, %) 12.0 Total deposits (annual growth rates, in %) April 2013 October April 2013 October 2013

20 Latest developments and comparison with the projection and influence on the future projection cycle GDP (annual growth rates, in %) actual projection-october 2013 In 2013, the total GDP is in line with the performances......but with different structure by components. Unchanged initial base for the following total GDP projections Inflation (annual rate, in %) actual* projection-october 2013 *Q1.2014: average growth in January-February, 2014 period In 2014, the inflation is lower than expected......with evident downward pressures......most probably, downward revision of the current projection Current account * October projection Source: NBRM * -2 Current account, as % GDP Trade balance Services Income Current transfers In 2013, the deficit on the current account is substantially lower than expected......given improved performance in the trade of goods and services......which means better initial base for the following projections. Financial account, as % of GDP -0.1 Other 2013* Currency and depositis, net Loans, net Trade credits, net Portfolio investment, net Durect investment, net Financial account 0.7 * October projection Source: NBRM. The capital net inflows in 2013 are substantially lower than projected......mostly as a result of the higher payments with trade credits than expected Total loans (annual growth rates, %) actual projection-october 2013 The credit growth for 2013 exceeds the expectations......as well as the latest performances for Total deposits (annual growth rates, %) actual projection-october with similar performances being registered with the deposits, as well......given better performances in the last quarter of 2013 and further increase in the monetary and credit aggregates from the beginning of 2014.

21 Monetary policy and macroprudential measures in 2013 Changes in the monetary instruments measure implementation explanation decrease in the interest rate on CB bills decrease in the reserve requirement change in the reserve requirement January and July 2013 January 2013 September 2013 a decrease of 0.25 p.p. thus reducing the interest rate to the historical minimum of 3.25% for the banks lending to net exporters and companies producing electricity, as well as investments in debt securities issued by these companies; full exemtion from allocation of reserve requirement for the banks' liabilities for issued debt securities in domestic currency and original maturity of minimum two years. with the banks' liabilities in domestic currency from 10% to 8%; with the liabilities in foreign currency from 13% to 15%; with banks' liabilities to non-residents financial institutions, with contractual maturity over one year, as well as for all liabilities to non-residents with contractual maturity over two years to 0%. For the short-term liabilities to nonresidents - financial institutions in foreign currency with contractual maturity up to one year, rate of 13% is still applied. In order to maintain the reserve requiremnt in Denars and Euros on a relatively stable level, the changes envisage increase in the Euro part of the reserve requirment, which is met in Denars, from 23% to 30%. amendments to the decision on reserve requirement decision on credit risk management amendments to the decision on managing liquidity risk January 2014 December 2013 December 2013 NBRM does not pay reserve requirement remuneration Regulatory and macro prudent changes: with potential relaxation effect, and thus higher possibilities for crediting reduction of the time deposits percentage assumed to outflow from the banks, from 80% to 60%, thus enabling larger long-term crediting of the real sector by the banks

22 Summary In the medium term, a growth based on the export segment is expected, which will act stimulating with the domestic demand, as well; The inflation movements would be mainly influenced by factors on the supply side, but in conditions of growth acceleration, gradual closure of the negative gap is expected; In the medium term, the effects of the FDI are expected to be more evident, by narrowing of the trade deficit, and accordingly, of the current account deficit; The capital inflows would be sufficient to cover the current account deficit and thus ensure additional increase in the foreign reserves; Sensitivity to scenario of possible changes in the global economic environment, which imposes a need of continuous regular monitoring of the global developments and flexibility of the monetary policy.