inflation and economic growth projection of narodowy bank ... · gdp growth will reach 4% in 2017,...

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:






- 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.


July CPI projection compared to March projection


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.


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


-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:






- Investment demand

- Foreign trade

- Inflation

Uncertainty

7

Projection 2017-2019

Economic conditions abroad

Consumption demand

Investment

Foreign trade

Inflation


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.


-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)


-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


Outline:






- Investment demand

- Foreign trade

- Inflation

Uncertainty

10

Economic conditions abroad


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


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


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


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 (%)


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)


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


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)


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)


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:






- Investment demand

- Foreign trade

- Inflation

Uncertainty

18

Consumption demand


-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


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


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.


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



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.


.

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


■ 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


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


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


... 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


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


■ 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 (%)


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:






- Investment demand

- Foreign trade

- Inflation

Uncertainty

30

Investment demand


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



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


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


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


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


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:






- Investment demand

- Foreign trade

- Inflation

Uncertainty

37

Foreign trade


-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) (%)


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


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


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)


-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:






- Investment demand

- Foreign trade

- Inflation

Uncertainty

41

Inflation


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.


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



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


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) (%)



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


The impact of rising cost pressure in domestic market limited by the moderate dynamics of import prices


-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) (%)


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


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:






- Investment demand

- Foreign trade

- Inflation

Uncertainty

49

Uncertainty

Risk factors

Fan charts


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


-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


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

inflation and economic growth projection of narodowy bank ... · gdp growth will reach 4% in 2017,...

Documents