Download Slovak Macroeconomic Outlook

Slovak Macroeconomic Outlook
CFA society
29 March 2017
Jan Toth
Deputy Governor
National Bank of Slovakia
Summary
Acceleration of GDP growth in the medium-term due to start of
the new productions in the car industry (as expected before).
This year the GDP growth slightly higher.
Economy will generate new jobs and labour market
overheating is supposed to emerge, it will lead to wage growth
pressures, the unemployment rate is assumed to decline
towards historically low 7 % at the end of 2019.
Core inflation should accelerate gradually with headline
inflation sharply up due to external factors (food prices).
Economic and Monetary Analyses Department
5. 4. 2017
2
External environment
•
•
•
Eurozone recovery based on both domestic demand and exports. Demand up due to
the ECB’s very accommodative monetary policy. Output gap still negative, should close only in
2019. Euro area exports are also projected to strengthen over the projection horizon (an
expected recovery in global trade and the past weakening of the exchange rate of the euro).
The near-term outlook for headline inflation has been revised upwards significantly
following the recent rise in oil and food prices. In 2017 energy prices are expected to
account for 1.2 percentage points of the strengthening in HICP inflation. After that, the
energy component will have a smaller positive contribution to headline inflation in 2018 and
2019. In contrast to energy inflation, the expected pick-up in HICP inflation excluding energy
and food is much more gradual, supported by unit labour cost growth.
The risks surrounding the euro area growth outlook have become less pronounced, but
remain tilted to the downside and relate predominantly to global factors.
March 2017 ECB staff macroeconomic projections for the euro area
(annual percentage changes)
Real GDP
HICP
HICP excluding energy and food
March 2017 MPE
2016 2017 2018 2019
1.7
1.8
1.7
1.6
0.2
1.7
1.6
1.7
0.9
1.1
1.5
1.8
December 2016 BMPE
2016 2017 2018 2019
1.7
1.7
1.6
1.6
0.2
1.3
1.5
1.7
0.9
1.1
1.4
1.7
Revisions since December 2016*
2016
2017
2018
2019
0.0
0.1
0.1
0.0
0.0
0.4
0.1
0.0
0.0
0.0
0.1
0.1
*Revisions are calculated from rounded data
Economic and Monetary Analyses Department
5. 4. 2017
3
External environment
• Foreign demand growth adjusted up in 2017 and 2018.
2016
2017
2018
2019
Foreign demand of the S.R.
(%)
3.4
3.9
4.2
4.1
Revision (p. p.)
-0.1
0.3
0.1
0.0
Economic sentiment indicators for Germany
3.17
12.16
9.16
6.16
3.16
12.15
9.15
6.15
3.15
12.14
9.14
6.14
0
3.14
90
12.13
20
9.13
95
6.13
40
3.13
100
12.12
60
9.12
105
6.12
80
3.12
110
ESI Germany
Ifo Germany (expectations for next 6 months)
ZEW Germany (assessment of the current economic situation, rhs)
Economic and Monetary Analyses Department
5. 4. 2017
4
Economic development –
Growth trajectory confirmed
Keeping the overall economic growth trajectory, but changing the structure of
growth.
2016
2017
2018
2019
GDP (%)
3.3
3.2
4.2
4.6
Revision (p. p.)
0.0
0.1
0.0
0.0
• More favorable external environment and higher employment growth
brings stronger exports and private consumption. Signs of
overheating in the labor market should reinforce the dynamics of
nominal wages.
• The effect of weaker investment on GDP is subdued due to import
intensity.
• The investments will slowly recover by gradually increasing public
investment, including the restoration of drawing EU funds.
• Export performance and overall growth will be driven by launch of
production at new car factory at the end of the forecast horizon.
Economic and Monetary Analyses Department
5. 4. 2017
5
Estimated up-to-now Brexit impact
incorporated in the baseline prediction
Since 2016Q3, Brexit impacts medium-term forecasts via foreign
demand channel.
•
•
•
Current aggregate UK GDP growth affected only mildly so far, but: rebalancing
towards domestic demand and openness falling => negative impact on SK foreign
demand.
Other transmission channels (uncertainty, exchange rate) not relevant so far.
Estimated up-to-now Brexit impact incorporated in the baseline prediction: SK foreign
demand down by cumulative 1.18 pp up to 2019 => SK GDP growth down by
cumulative 0.55 pp up to 2019, approx. 5,500 jobs.
Brexit impact on SK foreign demand and GDP growth
Impact on SK foreign demand growth (pp)
Impact on SK GDP growth (pp)
•
2016
-0.21
-0.11
2017
-0.34
-0.17
2018
-0.33
-0.15
2019
-0.30
-0.13
Cumulative
-1.18
-0.55
Brexit, though already incorporated in the baseline, still continues to be a downside
risk.
Economic and Monetary Analyses Department
5. 4. 2017
6
Employment- growing more quickly than expected
Employment
(%)
Revision (p. p.)
2016
2017
2018
2019
2.4
2.0
1.2
0.9
0.1
0.4
0.1
0.0
Employment, hours worked and unemployment rate (annual
growth, %, unemployment rate in %)
• Current
employment
developments
exceeded prior expectations.
• Latest monthly leading indicators suggest
faster short-term growth than the P4QA
forecast. At the end of the forecast horizon,
employment is by 15 ths. persons higher than
P4QA. Within the forecast horizon
(2017Q1 – 2019Q4) 84 ths. jobs will
be created cumulatively.
• In the medium-term, employment growth
should moderate, since a mismatch
between labour supply and demand
is building up and new employees are
increasingly hard to find.
• Part of the labour demand increase can
be saturated by increasing labour
force participation and an increase
in hours worked.
Economic and Monetary Analyses Department
5. 4. 2017
7
Unemployment- keeps declining towards 7%
Unemployment rate
(%)
Revision (p. p.)
2016
2017
2018
2019
9.6
8.4
7.7
7.1
-0.1
-0.4
-0.4
-0.4
• Improvement in unemployment is more
moderate
compared
with
the
employment upward revision. Towards
the end of the forecast horizon, lower by 11
ths. persons compared with P4QA.
Movement in the labour market and its influence on the
number of unemployed (within 2017 Q1 – 2019 Q4; ths.
persons)
• Namely, part of the employment growth
will be satisfied by a higher
participation rate growth and
return of part of the Slovak labour
force abroad back home.
• At the same time, we assume that each
year approximately 8 ths. new jobs will
be filled by foreigners, similarly as in
the previous forecast.
Economic and Monetary Analyses Department
5. 4. 2017
8
Wages – labour market tightness will support
stronger wage growth (reflation)
2016
2017
2018
2019
Nominal wage
(%)
3.3
4.4
4.8
4.9
Revision (p. p.)
0.0
0.2
0.2
0.3
Annual wage growth (%)
6
5,5
5,6
4,9
5
4,3
4,9
4,6
5,0
2016
2017
2018
2019
Real wage
(%)
3.8
3.0
2.7
2.6
Revision
(p. p.)
-0.1
0.1
0.1
0.0
• Labour market tightness due to the
lack of available job-seekers should
result in an acceleration of wage
growth in 2017 and in the mediumterm.
4
3
• First signs are already visible in form of
higher negotiated wage increases in
selected large firms.
2,6
2
1
0
2016
2017
2018
Average wage in the private sector
2019
Average wage in public sector, education and healthcare
Nominal productivity (non-inflationary wages)
Economic and Monetary Analyses Department
• Dynamic wage growth in the public
sector should continue according to
the results of wage negotiations in
education and administration.
5. 4. 2017
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Inflation in Slovakia – step-by-step acceleration due to
commodity price increase and demand pull inflation thereafter
2016
2017
2018
2019
HICP (%)
-0.5
1.4
2.0
2.1
Revision ( in p. p.)
0.0
0.2
0.1
0.2
Comparison to previous mid-term inflation prediction and
revision sources in respect to its structure (in p. p.)
2016
2017
2018
2019
Demand pull inflation
(%)
0.9
1.6
2.3
2.8
Revsion (in p. p.)
0.0
0.1
0.2
0.2
Remark: Demand pull inflation (net inflation without fuels) represent
administered prices, energy and food prices adjusted inflation.
• Slightly higher inflation in year
2017 as a result of recent price
development (higher food
and nonenergy industrial goods prices – due to
used cars price measurement methodic
change – 0,15 p. p.).
0,3
0,2
0,1
0,0
-0,1
2017
2018
2019
Non-energy administered prices
Net inflation without fuels
Energy
Food
HICP
Economic and Monetary Analyses Department
• In
consequent
years
inflation
acceleration is influenced by labour
market tensions (higher wage increases
could pass through into prices).
5. 4. 2017
10
Slovak Output Gap
(Comparison with other institutions)
• Economy does not need to be stimulated from 2018, otherwise could show
more signs of overheating.
5
10
8
6
overheating in the
economy
4
3,5
2,5
4
1,5
3
2
0,5
(%) 0
2
-2
-0,5
-4
1
-1,5
-6
-8
0
-2,5
NBS - P1Q2017
MF SR - IFP February 2017
IMF WEO October 2016
European Commission - Autumn 2016 (November)
OECD November 2016 Economic Outlook 100
Economic and Monetary Analyses Department
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
-3,5
2006
-1
2005
2002Q1
2003Q1
2004Q1
2005Q1
2006Q1
2007Q1
2008Q1
2009Q1
2010Q1
2011Q1
2012Q1
2013Q1
2014Q1
2015Q1
2016Q1
2017Q1
2018Q1
2019Q1
-10
Net Inflation excl. fuels (annual growth)
Output Gap (2 quarters backward), right axis
5. 4. 2017
11
Output gap estimates for euro area countries
IMF - output gap in 2017 (% of potential GDP)
1
0,5
0
-0,5
-1
-1,5
-2
PT
FI
IT
FT
ES
EE
CY
Economic and Monetary Analyses Department
EA
NL
BE
SI
AT
SK
(NBS)
LU
SK (IMF)
5. 4. 2017
DE
MT
IE
12
Fiscal outlook
2016
Deficit (% of GDP)
Revision (p. p.)
-1.9
0.4
2017 2018 2019
-1.6
0.0
-0.8
0.0
-0.3
0.0
2016 2017 2018 2019
Fiscal stance* (p. p.)
Revision (p. p.)
0.5
0.4
-0.3
-0.5
0.5
0.1
0.3
0.0
•
Improvement of general government balance outlook for 2016 at 1.9 % of GDP due to lower EU funds
co-financing and low level of local government investments.
•
Over the rest of the forecast horizon outlook of the fiscal consolidation remains unchanged expecting
favourable revenue development and moderate expenditure growth.
Fiscal stance* (y-o-y change in p. p.)
•
Debt is expected to reach the level of 52.0 %
of GDP in 2016, subsequently gradually
decreasing to the level of 49.2% of GDP in
2019 as a result of primary balance
improvement, low interest expenditures and
higher growth of nominal GDP.
•
Fiscal stance: Following the restrictive
influence of fiscal policy in 2016 it is expected a
moderate structural expansion this year. In the
following years the forecast assumes continuing
consolidation of public finances.
0,6
0,5
0,5
0,4
0,3
restriction
0,2
0,0
-0,2
expansion
-0,3
-0,4
-0,5
-0,6
2015
2016
2017
2018
2019
Economic and Monetary Analyses Department
*Fiscal stance: y-o-y change of cyclically adjusted primary balance adjusted
by influence of PPP projects classified outside general government and net
of influence of EU funds outside general government.
5. 4. 2017
13
Medium-term forecast P1Q-2017
2016
2017
2018
2019
Actual
P1Q2017
P4QA2016
P1Q2017
P4QA2016
P1Q2017
P4QA2016
GDP (constant
prices)
3.3
3.2
3.1
4.2
4.2
4.6
4.6
HICP
(average)
-0.5
1.4
1.2
2.0
1.9
2.1
1.9
Nominal wages
3.3
4.4
4.2
4.8
4.6
4.9
4.6
Real wages
3.8
3.0
2.9
2.7
2.6
2.6
2.6
Employment
ESA 2010
2.4
2.0
1.6
1.2
1.1
0.9
0.9
Unemployment
9.6
8.4
8.8
7.7
8.1
7.1
7.5
Economic and Monetary Analyses Department
5. 4. 2017
14
Equilibrium exchange rate
Nominal bilateral exchange rate
50
45
40
35
30
SKK/EUR
SKK_EUR eq*
28,23
2019Q1
2018Q1
2017Q1
2016Q1
2015Q1
2014Q1
2013Q1
2012Q1
2011Q1
2010Q1
2009Q1
2008Q1
2007Q1
2006Q1
2005Q1
2004Q1
2003Q1
2002Q1
2001Q1
2000Q1
1999Q1
1998Q1
1997Q1
25
* Calculation based on the equilibrium real effective exchange rate under the assumption of homogenous bilateral nominal
exchange rates misalignments and an inflation differential resulting from the material Perspektívy dlhodobejšieho vývoja
slovenskej ekonomiky.
Economic and Monetary Analyses Department
5. 4. 2017
15
Market share of Slovakia and REER misalignment
12
Annual changes of REER (PPI-manufacturing based)
misalignment and market share
(5 quarters centered moving averages, in p. p. and %)
10
8
Production capacity
increase related to
the FDI inflow
6
4
2,12
2
1,21
0
-2
-4
Increasing overvaluation
-4,87
Annual changes of REER misalignment
Economic and Monetary Analyses Department
5. 4. 2017
2016Q1
2015Q1
2012Q1
2011Q1
2010Q1
2009Q1
2008Q1
2007Q1
2006Q1
2005Q1
2004Q1
-8
2014Q1
Annual changes of market share
-7,42
2013Q1
-6
16
The macroeconomic outlook to 2024 (I)
Long-term trends setup (I)
In the pre-crisis period (2000-2008), the average potential output growth of SR reached
5.2%, in the forecast horizon (2017-2024), the average growth is expected to be around
3.0%.
– two factors:
1. Long-term growth of the reference economy (Germany) – lower impact
• Assumption of gradual slowdown in potential output growth in the long term
horizon.
2. The speed of real convergence to the reference country (β - convergence) – higher
impact
• Moderate long-term growth of the Slovak economy compared to precrisis period should be caused primarily due to an increasing degree of
convergence of the economy (higher degree of convergence of the economy
results in a slow catching up in the longer term).
Period
•
2000 - 2003
2004 - 2008
2009 - 2015
2016 - 2024
Average potential output Average potential output
Degree of convergence
growth of SR according to growth of SR according to SK/DE (reality + forecast,
β - convergence (%)
NBS P1Q-2017 (%)
GDP in c.p. per head in PPP)
4.3
3.7
45.3%
3.4
6.4
56.3%
3.0
2.3
63.2%
2.4
3.0 (2.8)*
73.3% (72.0%)*
* Figures in brackets represent the values adjusted for the effect of investments in the automotive industry
Economic and Monetary Analyses Department
5. 4. 2017
17
The macroeconomic outlook to 2024 (III)
Cyclical position of the economy
•
•
A negative output gap should be closed by the end of 2017 and consequently the forecast
assumes a gradual overheating of the economy. In the years 2020-2021 positive output gap
is expected to be around 1.6% with inflation accelerating to 3%.
In the long term horizon after positive impulses in the economy pass away, in the
environment of higher costs of domestic production supporting inflationary pressures the
output gap should start to close accompanied by a gradual slowdown of inflation.
Real GDP growth (%)
Output gap (% of potential GDP)
HICP inflation (%)
2016
3.3
-0.6
-0.5
2017
3.2
-0.2
1.4
2018
4.2
0.3
2.0
2019
4.6
1.0
2.1
2020
3.7
1.6
2.5
2021
2.8
1.6
2.9
2022
2.6
1.4
2.9
2023
2.6
1.2
2.8
2024
2.6
1.1
2.7
Overheating
Economic and Monetary Analyses Department
5. 4. 2017
18