inflation and economic growth projection of narodowy bank ... · gdp growth will reach 4% in 2017,...
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Economic Analysis Department
Warsaw / 10 July 2017
Inflation and economic growth projection
of Narodowy Bank Polski
based on the NECMOD model
Outline:
Inflation projection of the NBP based on the NECMOD model
Changes between rounds
Projection 2017 – 2019
- External environment
- Consumption demand
- Investment demand
- Foreign trade
- Inflation
Uncertainty
2
1 Changes between projection rounds
2 Projection 2017 - 2019
3 Uncertainty
Outline
Outline:
Inflation projection of the NBP based on the NECMOD model
Changes between rounds
Projection 2017 – 2019
- External environment
- Consumption demand
- Investment demand
- Foreign trade
- Inflation
Uncertainty
3
Changes between projection rounds
Inflation projection of the NBP based on the NECMOD model 4
July GDP projection compared to March projection
-0.3
-0.2
-0.1
0
0.1
0.2
0.3
0.4
0.5
-0.3
-0.2
-0.1
0
0.1
0.2
0.3
0.4
0.5
2017 2018 2019
Private consumption Public consumption
Gross capital formation Net exports
GDP
Source: GUS data, NBP calculations
Higher economic growth forecasts in Poland’s main trading
partners
Lower prices of energy commodities in the global markets
Cyclical adjustment in inventories due to higher demand
Upward revision of the expected GDP growth in 2017 –
significantly higher individual consumption in 2017Q1
Higher domestic demand and anticipated appreciacion of
the zloty exchange rate – lower contribution of net exports
to GDP growth
GDP y/y, % 2017 2018 2019
March 2017 3.7 3.3 3.2
July 2017 4.0 3.5 3.3
p. p.
Inflation projection of the NBP based on the NECMOD model 5
July CPI projection compared to March projection
Source: GUS data, NBP calculations
Increase in demand and cost pressure
In the first quarters of the projection faster increase in food
prices due to unfavourable weather conditions
Lower prices of energy commodities in the global markets
CPI y/y, % 2017 2018 2019
March 2017 2.0 2.0 2.3
July 2017 1.9 2.0 2.5-0.6
-0.4
-0.2
0
0.2
0.4
0.6
-0.6
-0.4
-0.2
0
0.2
0.4
0.6
2017 2018 2019
Core inflation Food prices
Energy prices CPI inflationp. p.
Inflation projection of the NBP based on the NECMOD model 6
Changes between projections
-2
-1
0
1
2
3
4
5
6
7
-2
-1
0
1
2
3
4
5
6
7
14q1 15q1 16q1 17q1 18q1 19q1 19q4
y/y, % 90% 60% 30% Mar 17 Jul 17 Inflation target
Source: GUS data, NBP calculations
-1
0
1
2
3
4
5
6
7
8
-1
0
1
2
3
4
5
6
7
8
14q1 15q1 16q1 17q1 18q1 19q1 19q4
y/y, % 90% 60% 30% Mar 17 Jul 17
CPI inflation y/y, %GDP y/y, %
Outline:
Inflation projection of the NBP based on the NECMOD model
Changes between rounds
Projection 2017 – 2019
- External environment
- Consumption demand
- Investment demand
- Foreign trade
- Inflation
Uncertainty
7
Projection 2017-2019
Economic conditions abroad
Consumption demand
Investment
Foreign trade
Inflation
Inflation projection of the NBP based on the NECMOD model 8
GDP growth accelerated in 2017Q1
16q4 17q1
GDP (y/y) (%)2.5 (2.7) 4.0 (3.3)
Domestic demand (y/y) (%)1.7 (2.5) 4.1 (3.3)
Private consumption (y/y) (%)4.5 (4.2) 4.7 (3.9)
Public consumption (y/y) (%)-0.2 (2.9) 1.0 (4.3)
Gross fixed capital form. (y/y) (%)-9.8 (-5.7) -0.4 (0.4)
Exports (y/y) (%)9.3 (6.6) 8.3 (6.5)
Imports (y/y) (%)8.2 (6.6) 8.7 (6.4)
Net exports contribution (p.p.)0.8 (0.2) 0.1 (0.1)
Values from the March projection are given in brackets (17q1 seasonally adjusted). Indicators with values
higher than in the March projection are marked green, whereas indicators with lower values are marked red.
Source: GUS data, NBP calculations
-8
-4
0
4
8
12
-8
-4
0
4
8
12
09q1 10q1 11q1 12q1 13q1 14q1 15q1 16q1 17q1
Industrial and constr. production y/y Retail sales y/y
Real wage fund y/y GDP y/y (RHS)
Inflation projection of the NBP based on the NECMOD model 9
-4
-3
-2
-1
0
1
2
3
4
5
6
-4
-3
-2
-1
0
1
2
3
4
5
6
16q1 17q1 18q1 19q1 19q4
Consumption Gross fixed capital formation
Change in inventories Net exports
GDP
GDP growth will reach 4% in 2017, and in 2018-2019 it will gradually slow down to the level close to the
potential output growth
GDP growth will be mainly driven by individual consumption
– a result of the improved situation in the labour market and
the increase in family benefits
Economic growth driven also by positive gross fixed capital
formation dynamics – supported by the inflow of EU funds
under the new 2014-2020 financial framework
Negative but increasing net exports contribution in the
forecast horizon – gradual weakening of domestic demand
in the long term; recovery in the euro area, anticipated weak
appreciation trend of the zloty exchange rate
y/y, % 2016 2017 2018 2019
GDP 2.7 4.0 3.5 3.3
Source: GUS data, NBP calculations
Outline:
Inflation projection of the NBP based on the NECMOD model
Changes between rounds
Projection 2017 – 2019
- External environment
- Consumption demand
- Investment demand
- Foreign trade
- Inflation
Uncertainty
10
Economic conditions abroad
Inflation projection of the NBP based on the NECMOD model 11
July projection assumes improvement in economic outlook in the external environment of the Polish economy
Source: IMF, World Economic Outlook Database
Stronger GDP growth in the euro area
US tax reforms
Higher growth path in China and further improvement in
economic outlook in BRIC countries
Weak long-term global economic outlook due to low productivity
growth and unfavourable demographic trends
Weak medium-term outlook for global trade’s growth
GDP y/y, % 2017 2018 2019
Euro area 1.9 (1.6) 1.7 (1.5) 1.6 (1.4)
Germany 1.9 (1.6) 1.7 (1.5) 1.5 (1.4)
United States 2.2 (2.2) 2.5 (2.1) 2.1 (1.9)
United Kingdom 1.4 (1.5) 1.5 (1.4) 1.7 (1.7)
March 2017 projection data are given in brackets
In its April WEO the IMF slightly increased short-term GDP growth
prospects (%, y/y) in the world economy for the first time in 6 years
2.5
3.0
3.5
4.0
4.5
5.0
5.5
2010 2011 2012 2013 2014 2015 2016 2017F 2018F 2019F
apr-12 oct-12 oct-13 oct-14
oct-15 oct-16 apr-17 data
Inflation projection of the NBP based on the NECMOD model
Tax reforms will support GDP growth in the United States
12
After a weak 2017Q1, GDP will accelerate due to fading factors which temporarily weakened households’ consumption (delays in tax
returns, residual seasonality).
In the longer term, the growth in consumption and residential investment will be driven by favourable labour market conditions, high value of
household’s wealth and consumer optimism.
Corporate investment in the short term will be stimulated by improvement in the activity of the mining industry.
From 2018 GDP growth will by supported by tax changes, with their impact on investment limited by the expected rise in public debt
hampering a permanent reduction in corporate taxes.
Source: BEA, NBP calculations Source: University of Michigan, FRB
350
375
400
425
450
475
500
525
55
60
65
70
75
80
85
90
95
100
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Consumer sentiment (points) and net household value (% GDP)
Consumer sentiment (LHS) Households' net worth ( RHS)
0
10
20
30
40
50
60
70
80
90
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Housing market index (points)
Current sales conditions
Sales expectations in the next six months
Source: NAHB/Wells Fargo
-5
-4
-3
-2
-1
0
1
2
3
4
2007 2009 2011 2013 2015 2017F 2019F
GDP and its components (% and p.p., y/y)
Individual consumption InvestmentInventories Net exportsPublic consumption GDP
Inflation projection of the NBP based on the NECMOD model
Growing risk of an economic slowdown in the US in case of a reversal of the upward stock
market trend
13
The main reason for the increase in the value of total assets of consumers and companies in 2017Q1 was a hike in the financial assets’
value as a result of the bull market in US stocks.
Relatively high share of financial assets in total assets of economic entities (on average 60% in the current recovery) means that a reversal
of the current upward stock market trend can lead to a reduction in household consumption expenditure (wealth effect) and business
investment.
Simulation analysis shows that in the scenario of the S&P 500 dropping by 15% in the period from July to December this year, the
probability of the US economy entering a recession will increase from 0% in 2017Q1 to about 26% in 2017Q4.
Attention: the shaded areas correspond to recession periods based upon the NBER turning points.
Source: FRB, CBO
250
300
350
400
450
500
550
600
650
550
600
650
700
750
800
850
900
950
1952 1962 1972 1982 1992 2002 2012Total Assets (L) Financial Assets (R)
Nonfinancial Assets (R)
4Q 2017 25,9
0
25
50
75
100
2007 2009 2011 2013 2015 2017
Current Conditional on equity price decline
Attention: the shaded areas correspond to recession periods based upon the NBER turning points.
Source: FRB, CBO, S&P, NBP calculations
Value of household and business assets (%
of potential GDP)
Probability of the economy entering the recession
upon the S&P 500 dropping by 15% scenario in the
horizon until the end of this year (%)
Attention: the shaded areas correspond to recession periods based upon the NBER turning points.
Source: Thomson Reuters
50
75
100
125
150
175
200
225
250
275
2000 2002 2004 2006 2008 2010 2012 2014 2016
Standard & Poor's 500 Dow Jones Industrial Average
Stock market indexes listed on New York
Stock Exchange (2009 y. = 100)
Inflation projection of the NBP based on the NECMOD model 14
Stronger recovery in the euro area
Better GDP data from recent quarters (related to the improvement in the external environment of the euro area and the increase in investment
demand) combined with the fiscal policy changes in the US make us expect on average 0.2 p.p. annually higher GDP growth in the euro area.
Consumption will remain an important growth factor, but its dynamics will be limited by the weakening purchasing power of income. End of
adjustments in the construction sector in some countries, high consumer optimism and low borrowing costs will support the acceleration of
construction investment. With the growing need to rebuild production assets, investment in machinery and equipment will also increase.
Expected higher euro area export growth is reflected in higher forecasts of import demand.
Source: European Comission, Eurostat, EBC and European Comission forcecasts
-30
-20
-10
0
10
20
30
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Exports in the euro area(mld EUR, 3-months average, %, y/y)
Exports within the euro area
Exports with other countries
-3.0
-2.0
-1.0
0.0
1.0
2.0
2012 2013 2014 2015 2016 2017
Investment in 5 largest euro area economies (% and p.p., q/q)
Investment in intangible fixed assets Other investment
Machinery and equipment Other construction
Construction of buildings Total investment
0
1
2
3
4
5
6
7
2013 2014 2015 2016 2017F 2018F 2019F
Imports forecasts for the euro area (%, y/y)
Imports EC - winter 2017
EC - spring 2017 ECB - march 2017
ECB - june 2017 Mean 1999-2016
Inflation projection of the NBP based on the NECMOD model 15
Employment in selected euro area countries
75
80
85
90
95
100
105
110
2008Q1 2009Q1 2010Q1 2011Q1 2012Q1 2013Q1 2014Q1 2015Q1 2016Q1 2017Q1
Employment in selected euro area countries (2007=100)
Euro area Germany Spain
Italy France Greece
Source: Eurostat, European Comission, NBP calculations *) Dotted line – calculations excluding Greece
0
1
2
3
4
5
6
7
0
5
10
15
20
25
30
35
2005 2007 2009 2011 2013 2015
Differentiation of unemployment rates in euro area countries (%)*
Mean MIN MAX Std. Dew. (RHS)
Inflation projection of the NBP based on the NECMOD model 16
Better economic outlook for German economy is due to positive current cyclical situation which is related to the improvement in the world
trade at the beginning of the year.
In addition to consumption supported by a very good labour market situation, GDP growth will be underpinned by a rise in investment in
machinery and equipment as a result of increased demand for German processing goods and a planned increase in public investment in
infrastructure and defense.
GDP growth will be supported by fiscal loosening (including a relatively strong increase in health spending, an increase in child care
expenses and education).
Slightly better growth prospects in Germany
-2
14
30
I.2015 II.2015 III.2015 I.2016 II.2016 III.2016 I.2017 II.2017
Planned investment within the next 12 months (balance of answers, points)
All sectors Industry (without construction)
Construction Retail sales
Financial and insurance services Real estate sector
Source:DIHKSource: Markit Economics, Eurostat
-0.6
-0.4
-0.2
0.0
0.2
0.4
0.6
0.8
1.0
2011 2012 2013 2014 2015 2016 2017F 2018F
Changes in structural primary balance(p. p.)
Source: European Comission, AMECO
Negative (positive) values
indicate loosening (tightening)
of fiscal policy
46
48
50
52
54
56
58
60
62
105
106
107
108
109
110
111
112
113
2015 2016 2017
Sentiment in processing industry (points) and industrial production (index)
Industrial production (RHS)
PMI Manufacturing (LHS)
Inflation projection of the NBP based on the NECMOD model
Better short-term prospects for China's growth and slow normalization of economic situation
in other BRIC countries
17
Source: Thomson Reuters Datastream; IMF, GFSR, April 2017; OECD
China: higher growth in 2017 thanks to recovery in external demand and government's expansionary measures. In the subsequent years,
gradual economic slowdown is expected as a result of the tightening in housing policy, as well as actions aimed at limiting the debt growth in
the economy.
Russia: slight acceleration of economic growth is expected due to recovery in the external environment, already introduced and expected
further interest rate cuts and low inflation.
Brazil: the economy is slowly coming out of the recession, but the increased political risk reduces the likelihood of a strong recovery.
India: revised GDP data shows that demonetization deepened the slowdown lasting since 2016Q2. Thanks to reforms, medium-term growth
prospects remain favourable.
0.0
0.5
1.0
1.5
2.0
2.5
6.0
6.5
7.0
7.5
8.0
8.5
2012 2013 2014 2015 2016 2017
GDP in China (%)
GDP (%, y/y) GDP (%, q/q, s.a.)
0
50
100
150
200
250
1980 1985 1990 1995 2000 2005 2010 2015
Credit to GDP in selected countries (%)
Spain Japan Thailand China US
0
2
4
6
8
10
12
14
16
18
2012
2013
2014
2015
2016
2017
CPI inflation (y/y, %)
Brazil China India Russia
Outline:
Inflation projection of the NBP based on the NECMOD model
Changes between rounds
Projection 2017 – 2019
- External environment
- Consumption demand
- Investment demand
- Foreign trade
- Inflation
Uncertainty
18
Consumption demand
Inflation projection of the NBP based on the NECMOD model 19
-7
-5
-3
-1
1
3
5
7
9
-7
-5
-3
-1
1
3
5
7
9
10q1 11q1 12q1 13q1 14q1 15q1 16q1 17q1 18q1 19q119q4
y/y, %
Public consumption (y/y) (%)
Private consumption (y/y) (%)
Individual consumption:
Good labour market conditions
In 2017 GDP growth supported by the impact of the “Family 500
Plus” programme
Improvement in consumer sentiment
Low interest rates facilitate financing consumption through
borrowing
Public consumption:
2017 Budget Act – relatively low growth rate of current expenditures
and spending on targeted subsidies
Years 2018 - 2019 – lack of detailed information on the continuation
of cutting public expenditure
Consumption demand as the main driver of GDP growth in the projection
y/y, % 2016 2017 2018 2019
Private consumption 3.8 4.4 3.6 3.4
Public consumption 2.8 2.8 3.5 3.3Source: GUS data, NBP calculations
Inflation projection of the NBP based on the NECMOD model 20
Good households’ financial situation
-6
-4
-2
0
2
4
6
8
-6
-4
-2
0
2
4
6
8
10q1 11q1 12q1 13q1 14q1 15q1 16q1 17q1 18q1 19q1 19q4
y/y, %
Private consumption (y/y) (%)
Disposable income (constant prices) (y/y) (%)
Further decline in unemployment rate and acceleration of wage growth
are expected, although the purchasing power of households will be
reduced by rising inflation.
In 2016-2017 dynamics of households’ disposable income will be
elevated by the growth in family benefits, due to the programme
„Family 500 plus”, which was implemented in April 2016 (it will affect
individual consumption with a lag due to the intertemporal consumption
smoothing mechanism).
-4
-2
0
2
4
6
8
10
-4
-2
0
2
4
6
8
10
16q1 17q1 18q1 19q1 19q4
Net transfers and taxes excl. 500 plus 500 plus
Wage fund Property income
Operating surplus Disposable income (y/y, %)
Disposable income decomposition (constant prices) (y/y, %)
Source: GUS data, Eurostat ,NBP calculations
Inflation projection of the NBP based on the NECMOD model 21
Consumption is driven by very good labour market conditions and favourable consumer sentiment
Values from the March projection are given in brackets (seasonally adjusted).
Indicators with values higher than in the March projection are marked green,
whereas indicators with lower values are marked red.
Source: GUS data, NBP calculations
Consumer confidence indicators
-45
-35
-25
-15
-5
5
15
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
current (s.a.) leading (s.a.)
16q4 17q1
ULC (y/y, %) 1.6 (1.8) 1.8 (1.3)
Labour productivity (y/y,%) 2.2 (2.3) 2.3 (2.9)
Gross wages (y/y, %) 3.7 (3.7) 4.1 (4.1)
Employment LFS (y/y, %) 0.3 (0.4) 1.7 (0.5)
Unemployment rate LFS (%) 5.6 (5.6) 5.1 (5.5)
Participation rate (%) 56.2 (56.3) 56.4 (56.3)
-30
-20
-10
0
10
20
30
40
50
2014-01 2014-07 2015-01 2015-07 2016-01 2016-07 2017-01
Current financial situation of housholdsFinancial situation of households in the next 12 monthsFear of being unemployed
Financial situation of households and risk of unemployment
Inflation projection of the NBP based on the NECMOD model 22
Source: GUS data, NBP calculations
Increase in participation rates
54
55
56
57
-1
0
1
2
10q1 11q1 12q1 13q1 14q1 15q1 16q1 17q1 18q1 19q1 19q4
Population (s.a.) (y/y) (%) Participation rate (%, RHS)
0
5
10
15
20
31
32
33
34
35
36
10 11 12 13 14 15 16 17 18 19
15-24 years old 25-44 years old
45-60/65 years old 60/65+ years old
Participation rate in the given age group (%, LHS )
Share of age group in the population (%, RHS)
0
10
20
30
40
10 11 12 13 14 15 16 17 18 19
85
86
87
88
0
5
10
15
20
25
30
35
10 11 12 13 14 15 16 17 18 19
58
60
62
64
66
68
70
72
74
0
5
10
15
20
25
30
10 11 12 13 14 15 16 17 18 19
0
2
4
6
8
10
• In periods of low unemployment people so far non-participating in
the labour market become active and deactivation of people
discouraged with the job search is ceased
• Improvement on the labour market has contributed to growing
bidirectional flows between non-participation and unemployment,
indicating an increasing activity of people more loosely linked to
the labour market. The recent increase in activity is probably
related to halted outflow of people from the labour market who are
the most likely to be discouraged from seeking work.
50
100
150
200
250
300
2008 2009 2010 2011 2012 2013 2014 2015 2016
E->N U->N N->E N->U
Inflation projection of the NBP based on the NECMOD model23
Pension reform in the projection
■ Lowering of retirement age may result in the surge in the
number of retirees and consequently lead to a decline in
labour supply.
- In the past, rising the retirement age caused a decrease in
the frequency of collecting benefits, the marginal
phenomenon was the increased numer of pensioners.
- Labour participation for people with benefits did not exceed
20% and these results were stable in previous years.
■ Decline in labour participation rate can be limited or delayed
due to a very good situation on the labour market.
Source: GUS data, NBP calculations
.
Without pension benefitsWith pension benefits
Labour force participation
Raising the retirement age shifted the frequency of collecting benefits
Males Females
8,800
8,900
9,000
9,100
9,200
9,300
9,400
9,500
9,600
2010Q1 2012Q1 2014Q1 2016Q1 2018Q1 2020Q1
The number of retirees (thous.)
2012 - the last projection before the increase in retirement ageJuly 2016 - the last projection before the decrease in retirement ageMarch 2017 - incorporates effects of lowering retirement ageJuly 2017 - including 20171Q dataData
0
0.2
0.4
0.6
0.8
1
64 65 66 67Age
2010 2013 2016
0
0.2
0.4
0.6
0.8
1
59 60 61 62Age
2010 2013 2016
0
0.1
0.2
0.3
0.4
0.5
0.6
-1 0 1 2Distance to retirement
2016M 2016F 2013M 2013F 2010M 2010F
0
0.1
0.2
0.3
0.4
0.5
0.6
-1 0 1 2
Inflation projection of the NBP based on the NECMOD model 24
■ Available sources of data on
economic immigrants:
- Residence data of the Ministry
of Foreign Affairs (number of
visas and permits issued by
consulates),
- Number of work permits and
employer's declarations of intent
to employ a foreigner (Ministry
of Family, Labour and Social
Policy),
- Border traffic (data from Border
Guard and integrated GUS
survey of travel).
■ LFS largely does not include
short-term immigration - it takes
into account only residents (i.e.
staying over 12 months).
Visas and residence permits issued to Ukrainian
citizens
Structure of visas issued to Ukrainian citizens in Lviv
consular district (according to the purpose of issue)
Source: Ministry of Foreign Affairs and The
office for Foreigners data, NBP calculations
- In 2016 consulates in Ukraine issued about 1 264 thous. visas, of which national visas (type D entitling to
stay >3M) accounted for 56%.
- According to data from Lviv consular district (covering 46% of all visas), approximately 50% of visas were
issued for working purpose.
- Ukrainian citizens also received about 58 thous. temporary residence permits and 6 thous. permanent
residence permits.
- Estimated scale of legal employment of Ukrainian citizens in Poland corresponds to the number of
national visas and residence permits and amounted to around 770 thous. in 2016.
Immigration from Ukraine - available estimates
204
296
511
770
0
200
400
600
800
1000
1200
1400
2013 2014 2015 2016
Th
ous.
Schengen visas (< 3M)National visas (>3M)Temporary residence permitsPermanent residence permitsNational visas + residence permits
43.4
21.5
14.6
2015
work
shopping and familiesof displaced personsbusiness
cultural activity
based on the Pole'sCardvisit
tourism
other
49.7
22.2
10.7
2016
Inflation projection of the NBP based on the NECMOD model 25
Immigration from Ukraine - available estimates (cont.)
Source: The National Border Guard and Ministry of Family, Labour and Social Policy data, NBP calculations
Border crossings between Poland and Ukraine vs. number
of work permits and employer's declarations of intent to
employ a foreigner
Structure of employer's declarations by sector
- Agriculture still absorbs a significant part of short-term immigration,
but over the past 3 years the importance of services has
increased.
- Services already accounts for about 50% of all claims.
- In 2016 Poland issued over 127 thous. work permits for foreigners and
registered 1314 thous. employer's declarations that form the basis for
applying for a visa.
- At the same time, the number of border crossings between Poland and
Ukraine has increased significantly in recent years, particularly one-day
tourism (shopping, local border traffic)
2000
2500
3000
3500
4000
4500
5000
5500
6000
0
200
400
600
800
1000
1200
1400
1600
2010 2011 2012 2013 2014 2015 2016
Thous.
Thous.
Number of work permits (LHS)
Number of employer's declarations (LHS)
Number of Polish-Ukrainian border crossings by foreigner (to PL) (RHS)
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2008 2009 2010 2011 2012 2013 2014 2015 2016
agriculture industry construction services
Inflation projection of the NBP based on the NECMOD model 26
Source: GUS data, NBP calculations, Quick Monitoring NBP, F-01/I-01 GUS
Despite favourable labour demand conditions …
-30
-20
-10
0
10
20
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017balance empl. ind.empl. ind. (s.a.) long-term average
Employment forcasts
-20
-10
0
10
20
30
2012 2013 2014 2015 2016 2017SMEs (s.a.) only up to 49 persons (s.a.)Large enterprises (s.a.) only over 2000 persons (s.a.)
Employment forecasts by company size
Employment in the corporate sector
-3%
-2%
-1%
0%
1%
2%
3%
4%
5%
5000
5200
5400
5600
5800
6000
2009.04 2010.04 2011.04 2012.04 2013.04 2014.04 2015.04 2016.04 2017.04
r/r - LHS s.a. - RHS
Inflation projection of the NBP based on the NECMOD model 27
... in the projection horizon, limited supply of labour will lead
to a slowdown in employment growth
Unemployment rate
Change of labour force, thous. y/y
-2%
3%
8%
13%
18%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
LFS unemployment rate (s.a.)
Registered unemployment rate (s.a.)
5,2 %
7,5%
Vacancies and difficulties with hiring employees
(percentage of enterprises)
10
18
26
34
42
50
2006Q4 2007Q4 2008Q4 2016Q3 2017Q1
vacancies difficulties with hiring employees
%
54
55
56
57
-2
-1
0
1
2
3
4
10q1 11q1 12q1 13q1 14q1 15q1 16q1 17q1 18q1 19q1 19q4
Employment (y/y) (%) Participation rate (%, RHS)
Source: GUS data, NBP calculations, Quick Monitoring NBP
-400
-300
-200
-100
0
100
200
300
400
500
600
-400
-300
-200
-100
0
100
200
300
400
500
600
16q1 17q1 18q1 19q1 19q4
Demographic structurePopulationParticipation rate (population 60/65+ years of age)Participation rate (population 45-59/64 years of age)Participation rate (population 25-44 years of age)Participation rate (population 15-24 years of age)Labour force
Inflation projection of the NBP based on the NECMOD model
30400
30500
30600
30700
30800
30900
31000
31100
20
14
I
20
14
II
20
14
III
20
14
IV
20
15
I
20
15
II
20
15
III
20
15
IV
20
16
I
20
16
II
20
16
III
20
16
IV
20
17
I
Population LFS (thous.)
simulation published data
28
Source: GUS data, NBP calculations
■ If revisions were regular, the
dynamics of non-agricultural
workers in 2017Q1 would be
slightly lower than in 2016Q4
• Irregularity of population revisions in LFS
impedes assessment of labour market
indicators
• The graphs show the simulation (green lines)
of labour market measures if revisions were
made on a regular basis
• Population revisions only
slightly changed the number
of people working in
agriculture
• If revisions were
regular, changes in
2017Q1 would not be
as abrupt compared to
2016
Statistical effects of changes in population LFS
16900
17000
17100
17200
17300
17400
17500
17600
20
14
I
20
14
II
20
14
III
20
14
IV
20
15
I
20
15
II
20
15
III
20
15
IV
20
16
I
20
16
II
20
16
III
20
16
IV
20
17
I
Labour force (thous.)
15200
15400
15600
15800
16000
16200
16400
20
14
I
20
14
II
20
14
III
20
14
IV
20
15
I
20
15
II
20
15
III
20
15
IV
20
16
I
20
16
II
20
16
III
20
16
IV
20
17
I
Employed (thous.)
0.0
0.5
1.0
1.5
2.0
2.520
14
I
20
14
II
20
14
III
20
14
IV
20
15
I
20
15
II
20
15
III
20
15
IV
20
16
I
20
16
II
20
16
III
20
16
IV
20
17
I
Employed y/y (%)
1400
1500
1600
1700
1800
20
14
I
20
14
II
20
14
III
20
14
IV
20
15
I
20
15
II
20
15
III
20
15
IV
20
16
I
20
16
II
20
16
III
20
16
IV
20
17
I
Employed on private farms in agriculture (thous.)
-15
-10
-5
0
5
20
14
I
20
14
II
20
14
III
20
14
IV
20
15
I
20
15
II
20
15
III
20
15
IV
20
16
I
20
16
II
20
16
III
20
16
IV
20
17
I
Employed on private farms in agriculture y/y (%)
13500
13700
13900
14100
14300
14500
14700
14900
20
14
I
20
14
II
20
14
III
20
14
IV
20
15
I
20
15
II
20
15
III
20
15
IV
20
16
I
20
16
II
20
16
III
20
16
IV
20
17
I
Employed outside agriculture (thous.)
0
1
1
2
2
3
3
4
20
14
I
20
14
II
20
14
III
20
14
IV
20
15
I
20
15
II
20
15
III
20
15
IV
20
16
I
20
16
II
20
16
III
20
16
IV
20
17
I
Employed outside agriculture y/y (%)
Inflation projection of the NBP based on the NECMOD model 29
Higher wage dynamics
Wage pressure (percentage of firms)
Forecasts of wage growth
Source: GUS data, NBP calculations, Quick Monitoring NBP, F-01/I-01 GUS
4
6
8
10
12
14
16
40
44
48
52
56
60
64
2012 2013 2014 2015 2016 2017firms with no change or increasing wage pressure
only firms with increasing wage pressure (RHS)
0
10
20
30
40
50
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017long-term average_% of enterprises share of employees (s.a.)
long-term average_% of employees share of enterprises (s.a.)
Labour income share in gross value added
– corporate sector
-2
0
2
4
6
8
-2
0
2
4
6
8
10q1 11q1 12q1 13q1 14q1 15q1 16q1 17q1 18q1 19q119q4
Nominal wages (y/y) (%)
Real wages (y/y) (%)
14.5
15.0
15.5
16.0
16.5
17.0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
share (cum.) share (quarterly)
Outline:
Inflation projection of the NBP based on the NECMOD model
Changes between rounds
Projection 2017 – 2019
- External environment
- Consumption demand
- Investment demand
- Foreign trade
- Inflation
Uncertainty
30
Investment demand
Inflation projection of the NBP based on the NECMOD model 31
Private investment:
Increasing use of funds from 2014-2020 EU financial perspective
Improvement in investment financed with own funds
Good financial condition of enterprises
Improving investor sentiments
Low interest rates
Capacity utilisation in the economy highest since 2008
Public investment:
Increasing use of funds from 2014-2020 EU financial perspective
Housing investment:
Good labour market conditions
Low interest rates
Expiration of the “Housing for the Young” government scheme after
2018
Increase in investment since 2017
y/y, % 2016 2017 2018 2019
Gross fixed capital formation -7.9 5.7 6.6 4.3
-14
-12
-10
-8
-6
-4
-2
0
2
4
6
8
10
12
14
16
-14
-12
-10
-8
-6
-4
-2
0
2
4
6
8
10
12
14
16
10q1 11q1 12q1 13q1 14q1 15q1 16q1 17q1 18q1 19q119q4
GFCF enterprises GFCF public sector
GFCF housing GFCF
Source: GUS data, NBP calculations
Inflation projection of the NBP based on the NECMOD model 32
Temporary decline in the use of EU funds in 2016 – a significant increase in the absorption of EU
funds is expected in the coming years
Source: GUS and Ministry of Economic Development data, NBP calculations
The use of EU funds (without CAP and RDP)
0.0
0.5
1.0
1.5
2.0
2.5
3.0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
% G
DP
realization Mar 2017 assumptions Jul 2017 assumptions
Inflation projection of the NBP based on the NECMOD model 33
Current data support the expected improvement in the absorption rate in the forecast horizon
Source: GUS and Ministry of Economic Development data, NBP calculations
0
10
20
30
40
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
2 rok 3 rok 4 rok
Cum
. %
of allo
cation
07-13 14-20
0
1
2
3
4
january-may 2016 january-may 2017
mld
PLN
0
1
2
3
4
5
6
january-may 2016 january-may 2017
mld
PLN
0
5
10
15
20
2009/2016 2010/2017 2011/2018 2012/2019
% o
f allo
catio
n
07-13 14-20
The stage of signing contracts (without CAP and RDP) The use of EU funds (without CAP and RDP)
Payment requests from beneficiaries – total EU funds
(without CAP and RDP)Payment requests from beneficiaries – public investment
Data since may 2017 point to an acceleration in the absorption rate of EU funds, especially in public sector investment expenditure
Despite slower EU funds absorption from 2014-2020 perspective compared to the previous one, the use of EU funds in expected to
accelerate in the coming years
Inflation projection of the NBP based on the NECMOD model 34
In particular, higher investment growth co-financed with the EU funds in local government units
Source: Ministry of Finance data, NBP calculations
Forecast of capital expenditure of local government
units financed with the use of EU funds (mld pln)
Capital expenditure of local government units financed
with the use of EU funds (change y/y, %)
P - estimation based on the assumption that the 2017 plan will be implemented
equally to an average plan's realization from the last 5 years
P
0
3
6
9
12
15
18
2012 2013 2014 2015 2016 2017
forecast; financial plans of local gov. units from 20171Q realization
-100
-60
-20
20
60
100
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q
2014 2015 2016 2017
Inflation projection of the NBP based on the NECMOD model 35
Planned changes in investment outlays
within the current year y/y by ownership (balance of changes)
Source: Quick Monitoring NBP
Survey among enterprises point to low demand barriers
Quarterly forecast of demand, output and orders (s.a.)
-20
-10
0
10
20
30
40
2012 2013 2014 2015 2016 2017
private only foreign capital
public only local governement
3
13
23
33other
rawmaterial
costs
labourcosts
EU funds
externalfinancing
othersources ofuncertainty
demand
legal andfiscal
environm…
lack of ownfunds
private public
Barriers to investment
5
10
15
20
2010 2011 2012 2013 2014 2015 2016 2017
Demand-side barriers
0
5
10
15
20
2012 2013 2014 2015 2016 2017
demand long-term averageoutput long-term averagenew orders long-term average
Inflation projection of the NBP based on the NECMOD model 36
High capacity utilisation in the economy
Capacity utilisation according to Quick Monitoring NBP and
GUS data (%, s.a.)
Capacity utilisation according to Quick Monitoring NBP data
(%, s.a.)
70
72
74
76
78
80
82
2009 2010 2011 2012 2013 2014 2015 2016 2017
QM (total) QM (industry) GUS (industry)
72
74
76
78
80
82
84
86
2009 2010 2011 2012 2013 2014 2015 2016 2017
construction services
processing industry production of capital goods
82,4 – 17Q1
81,3 – 17Q1
79,2 – 17Q1
80,2 – 17Q2
Source: GUS data, Quick Monitoring NBP
Outline:
Inflation projection of the NBP based on the NECMOD model
Changes between rounds
Projection 2017 – 2019
- External environment
- Consumption demand
- Investment demand
- Foreign trade
- Inflation
Uncertainty
37
Foreign trade
Inflation projection of the NBP based on the NECMOD model 38
-4
-3
-2
-1
0
1
2
3
4
5
-20
-15
-10
-5
0
5
10
15
20
25
10q1 11q1 12q1 13q1 14q1 15q1 16q1 17q1 18q1 19q1 19q4
Net exports contribution (percentage points, right axis)
Exports (y/y) (%)
Imports (y/y) (%)
Source: GUS data, NBP calculations
Net exports contribution to growth will limit GDP dynamics
Exports:
Moderate recovery in the euro area
High profitability of exporters (high price profitability)
Anticipated appreciation of the zloty exchange rate
Imports:
In 2017 acceleration of consumption and investment
dynamics
From 2018 slower domestic demand growth
y/y p.p. 2016 2017 2018 2019
Net exports
contribution0.3 -0.6 -0.5 -0.1
Inflation projection of the NBP based on the NECMOD model 39
Changes in the world trade and
margins of tolerance for exchange rate
fluctuations
Source: CPB and Eurostat data, Quick Monitoring NBP
The value of euro echange rate which makes exports and
imports unprofitable and the actual euro echange rate
Changes in EU trade by main directions (% y/y,
constant prices, s.a.)
Changes in Polish exports by main groups of countries (%,
y/y, constant prices, s.a.)
Changes in world trade and imports (% y/y, constant prices, s.a.)
The value of dolar echange rate which makes exports and
imports unprofitable and the actual dolar echange rate
-4
-2
0
2
4
6
8
2015 2016 2017
trade within EU
imports from other countries
exports to other countries
-10
-5
0
5
10
15
20
2015 2016 2017Euro area Other EU countries
Other countries
3.0
3.5
4.0
4.5
5.0
3.0
3.5
4.0
4.5
5.0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
exchange rate for profitable exportactual euro echange rateconfidence interval (+/- std. dev.)exchange rate for profitable importconfidence interval (+/- std. dev.)
2.0
2.5
3.0
3.5
4.0
4.5
2.0
2.5
3.0
3.5
4.0
4.5
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017exchange rate for profitable exportactual dolar exchange rateconfidence interval (+/- std. dev.)exchange rate for profitable importconfidence interval (+/- std. dev.)
-4
-2
0
2
4
6
8
10
2014 2015 2016 2017
total US Euro area developing countries
Inflation projection of the NBP based on the NECMOD model 40
3.6
3.7
3.8
3.9
4
4.1
4.2
4.3
4.4
4.5
4.6
3.6
3.7
3.8
3.9
4
4.1
4.2
4.3
4.4
4.5
4.6
10q1 11q1 12q1 13q1 14q1 15q1 16q1 17q1 18q1 19q1 19q4
Real effective exchange rate
The anticipated gradual appreciation of the zloty
bringing the effective exchange rate close to the
equilibrium exchange rate
Positive current and capital account balance in forecast
horizon (temporary decrease in 2017)
Source: GUS data, NBP calculations
-6
-4
-2
0
2
4
6
-6
-4
-2
0
2
4
6
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Remittances Primary income
Secondary income Goods and services
Current and capital account (% GDP)
Outline:
Inflation projection of the NBP based on the NECMOD model
Changes between rounds
Projection 2017 – 2019
- External environment
- Consumption demand
- Investment demand
- Foreign trade
- Inflation
Uncertainty
41
Inflation
Inflation projection of the NBP based on the NECMOD model 42
Inflation growth rate at the turn of 2016/2017 under the base effect
Values from the March projection are given in brackets (seasonally adjusted).
Indicators with values higher than in the March projection are marked green, whereas indicators with lower values are marked red.
Source: GUS data, NBP calculations
y/y, %17q1
CPI inflation 2.0 (1.9)
Core inflation 0.3 (0.4)
Food prices
inflation3.4 (3.2)
Energy prices
inflation5.8 (5.2)
Base effect – the influence on CPI
-1
-0.5
0
0.5
1
1.5
-1
-0.5
0
0.5
1
1.5
15Q1 15Q2 15Q3 15Q4 16Q1 16Q2 16Q3 16Q4 17Q1 17Q2 17Q3 17Q4 18Q1
Food and non-alcoholic beverages Energy Core inflation CPI
Inflation projection of the NBP based on the NECMOD model 43
Source: GUS data, NBP calculations
Consumer prices dynamics gradually reaching inflation target
In 2017 - growth in food and energy prices supported by temporary
factors
Increase in cost pressure:
Dynamics of unit labour costs will accelarate
Low inflation in the euro area
In the projection horizon, stabilization of global energy
commodity prices combined with the forecasted depreciation
of the US dollar, the currency in which commodities are
quoted.
Increase in demand pressure – positive output gap (limited impact
on inflation as the sensitivity of price growth to changes in the
domestic economic conditions has decreased in the recent years)
y/y, % 2016 2017 2018 2019
CPI inflation -0.6 1.9 2.0 2.5
-2
-1
0
1
2
3
4
5
-2
-1
0
1
2
3
4
5
10q1 11q1 12q1 13q1 14q1 15q1 16q1 17q1 18q1 19q1 19q4
Core inflation Food prices
Energy prices CPI inflation
Inflation projection of the NBP based on the NECMOD model 44
In 2018-2019 – output gap close to 0,5% of potential output
-0.5
0
0.5
1
1.5
2
2.5
3
3.5
4
-0.5
0
0.5
1
1.5
2
2.5
3
3.5
4
16q1 17q1 18q1 19q1 19q4
Economically active pop. NAWRU
Capital TFP
Potential output
-3
-2
-1
0
1
2
3
4
5
6
-3
-2
-1
0
1
2
3
4
5
6
10q1 11q1 12q1 13q1 14q1 15q1 16q1 17q1 18q1 19q1 19q4
Output gap (% potential output) GDP (y/y) (%)
Potential output (y/y) (%)
Source: GUS data, NBP calculations
Inflation projection of the NBP based on the NECMOD model
Inflation in the environment of the Polish economy
45
Fluctuations in current inflation indicators in recent months reflect the base effect in energy prices and seasonal changes.
Prospects of accelerating inflation in the US is supported by: planned fiscal stimulus, the labour market close to full employment and low
productivity growth.
In the euro area, the end of negative impact of recent oil price hikes and strengthening economic growth will support the recovery of unit
margins, however, the return of inflation to the ECB's target will be slow due to still relatively high unemployment rate and a negative output
gap that limit wage and margins growth.
-10
-8
-6
-4
-2
0
2
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
United States: employment gap outside the agricultural sector (milion jobs)
forecast realization
Source: BLS, CBO, NBP calculations
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
20
12
20
13
20
14
20
15
20
16
20
17
CPI inflation (%, y/y)
US Euro area OECD countries
Source: OECD
0
5
10
15
20
25
2008 2008 2009 2010 2011 2011 2012 2013 2014 2014 2015 2016
Unused labour force capacity in the euro area (% of economically active population)
Unemployed
Persons seeking work but not immediately available
Persons available to work but not seeking
Underemployed part-time workers
Source: Eurostat
Inflation projection of the NBP based on the NECMOD model 46
The impact of rising cost pressure in domestic market limited by the moderate dynamics of import prices
Source: GUS data, NBP calculations
-6
-4
-2
0
2
4
6
8
10
12
14
16
-6
-4
-2
0
2
4
6
8
10
12
14
16
10q1 11q1 12q1 13q1 14q1 15q1 16q1 17q1 18q1 19q1 19q4
y/y, %Import prices excl. oil and gas prices (y/y) (%)
Import prices (y/y) (%)
-2
0
2
4
6
8
-2
0
2
4
6
8
10q1 11q1 12q1 13q1 14q1 15q1 16q1 17q1 18q1 19q119q4
Gross wages (y/y) (%) Labour productivity (y/y) (%)
ULC (r/r) (%)
Inflation projection of the NBP based on the NECMOD model 47
Expected stabilization of oil prices
Source: The United States Department of Energy, Bloomberg, OPEC
US crude oil imports form selected Middle Eastern
countries (mln b/d)Market oil inventories in the US (mln b)
Oli production in the US (mln b/d) and the number of
active drilling rigs in the US
Brent oil prices (USD/b)
Forecast of oil production in the United States (mln b/d)
20
30
40
50
60
70
80
90
100
110
120
2014 2015 2016 2017
daily monthly average quarterly average
250
300
350
400
450
500
550
2015 2016 2017
5-yr Range inventories
0.0
0.5
1.0
1.5
2.0
2.5
2011 2012 2013 2014 2015 2016 2017
Kuwait Iraq Saudi Arabia
0
250
500
750
1000
1250
1500
8.25
8.50
8.75
9.00
9.25
9.50
9.75
2015 2016 2017
the number of active drilling rigs in the US (RHS)
oil production in the US (4 weeks average - LHS)
8.5
9.0
9.5
10.0
10.5
2015 2016 2017 2018
oil production in the US EIA forecast Feb 2017
EIA forecast Jun 2017
Inflation projection of the NBP based on the NECMOD model 48
Energy commodity prices after a hike in the short term will stabilize at a lower level
Source: GUS data, NBP calculations, Bloomberg, Reuters
-8
-6
-4
-2
0
2
4
6
8
10
12
-8
-6
-4
-2
0
2
4
6
8
10
12
10q1 11q1 12q1 13q1 14q1 15q1 16q1 17q1 18q1 19q1 19q4
y/y, % Energy prices inflation (%)
Food prices inflation (%)
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1
1.1
1.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1
1.1
1.2
10q1 11q1 12q1 13q1 14q1 15q1 16q1 17q1 18q1 19q1 19q4
Index of energy commodity prices (USD, 2011=100)
III/17
Index of agricultural commodity prices (EUR, 2011=100)
III/17
Outline:
Inflation projection of the NBP based on the NECMOD model
Changes between rounds
Projection 2017 – 2019
- External environment
- Consumption demand
- Investment demand
- Foreign trade
- Inflation
Uncertainty
49
Uncertainty
Risk factors
Fan charts
Inflation projection of the NBP based on the NECMOD model 50
Risk area Description ImpactScale of
impact
Deterioration
of global growth
outlook
Decline in the US economy (increase in uncertainty, stock market correction against its current high
level, decline in consumption, more pronounced slowdown in China, diminishing mining sector
activity).
Economic slowdown in China (stability of the financial system, deeper-than-expected fall in housing
investment as a result of restrictions imposed by local authorities).
Persistent low-productivity growth in many economies.
Inflation
GDP **
Improvement in
global economic
conditions
Higher economic growth in US (positive effect of fiscal stimulus, higher consumption dynamics due
to households deleveraging process coming almost to the end).
Higher economic growth in the euro area (higher dynamics of investment in machinery and
equipment, deeper weakening of the euro against the dollar, continuation of the quantitative easing
policy).
Inflation
GDP **
Changes in labour
supply
The impact of lowering of retirement age on the labour participation rate – uncertain numer of
people retiring, depending on the labour market situation.
Return migration of Poles.
Scale of migration of Ukrainian citizens to Poland (impact of the introduction of a visa-free regime or
an exacerbation of conflict in Ukraine).
Inflation
GDP *
Crude oil prices
in the global markets
Fluctuations in the oil supply in the global markets:
- unknown shape of future OPEC's supply policy,
- the scale of the future growth of oil production in the US related to the oil prices.
Global growth outlook, especially in the emerging Asian countries.
Inflation
GDP *
ConclusionsInflation
GDP
Inflation projection of the NBP based on the NECMOD model 51
-1
0
1
2
3
4
5
6
7
8
-1
0
1
2
3
4
5
6
7
8
14q1 15q1 16q1 17q1 18q1 19q1 19q4
90% 60% 30% Central path
GDP
y/y, %
central
path
50% probability
interval
2017 4.0 3.4 4.7
2018 3.5 2.5 4.5
2019 3.3 2.3 4.3
Source: GUS data, NBP calculations
CPI
y/y, %
below
1.5%
below
2.5%
below
3.5%
below
centr. path
in the
range
1.5-3.5%
2017 18% 88% 100% 49% 82%
2018 35% 64% 86% 49% 51%
2019 29% 52% 75% 51% 45%
CPI
y/y, %
central
path
50% probability
interval
2017 1.9 1.6 2.3
2018 2.0 1.1 2.9
2019 2.5 1.3 3.6
CPI inflation y/y, % GDP y/y, %
-3
-2
-1
0
1
2
3
4
5
6
-3
-2
-1
0
1
2
3
4
5
6
14q1 15q1 16q1 17q1 18q1 19q1 19q4
90% 60% 30% Central path Inflation target