Download In the second quarter of 2011

Revision of the macroeconomic
projections for 2011
Dimitar Bogov
Governor
August, 2011
CONTENTS
Macroeconomic picture between the two
projections
Revision of the macroeconomic projections
for 2011
1. MACROECONOMIC PICTURE BETWEEN THE
TWO PROJECTIONS
 Real GDP growth in the first quarter of 2011 – in line with
the expectations;
 In the second quarter of 2011:



Movement of inflation below the expectations from the April
projection;
Movements in the balance of payments were within the expectations;
Growth of money supply and credit growth identical with the
projection.
The key interest rate of the NBRM remained at the level of 4% during
the second quarter of 2011.
ECONOMIC ACTIVITY
 Real GDP growth in Q1 2011 of 5.1%, in line with the April projection:
 Higher positive contribution of domestic demand (due to the higher investment and
private consumption),
 More negative contribution of net-exports (more negative contribution of imports).
 In Q2 2011, the annual GDP growth is estimated at 4.3% (higher than that of 3.3%
projected in April) – investments and exports are still the main generators of growth.
Projection of Foreign effective demand
GDP projection
(y-o-y real growth rates, in %)
(y-o-y real growth rates, in %)
-4
-6
Q2
1.0
Q1.2011
Q3
Q2
Q4
Q1.2010
Q3
Q2
Q1.2009
Q4
Q3
Q2
Q4
0.6
July projection
Q1.2008
Q2
Q1.2011
Q4
Q3
Q2
Q4
Q1.2010
Q3
Q2
Q1.2009
*SSO's revision of the growth in Q4 2010 from 2.3% to 3.8%.
April projection
0
-2
starting point
for July
projection
starting point
for April
projection
Actual
2
2.3
Q4
Q3
Q2
Q3
Q1.2008
-4
Q2
-2
Q1.2007
0
Q4
Actual
April projection
July projection
4
Q4
starting point
for April
projection
4
2
5.1
Q2
6
6
Q3
starting point
for July
projection
Q1.2007
8
INFLATION
 Stabilization of the annual inflation rate in Q2 2011: 4.7% (4.1% in Q1 and
2.9% in Q4).
 The annual inflation rate in the second quarter is due to:
 increased prices of food with contribution of 3.2 p.p.
 regulated prices of energy products with contribution of 0.9 p.p.
 Core inflation still relatively stable: 1.2% (contribution of 0.6 p.p.)
 The achieved inflation rate is lower that the one projected in April (5 – 5.5%): due to
lower than expected growth of food prices, and to a lesser extent due to the
reduced excise duty on oil derivatives.
Q2
Q1 2011
Q4
Q3
Q2
Q4
Q1 2010
Q2
Q1 2011
Q4
Q3
Q2
Q1 2010
Q4
Q3
Q2
Q1 2009
Q4
Q3
Q2
Q4
Q3
Q1 2008
-4
Q2
-2
Q1 2007
0
Q3
2
Q2
4
Q1 2009
Inflation
6
April projection (upper bound)
Q4
Energy prices
Q3
8
April projection (lower bound)
Q2
Food prices
Q1 2008
10
Inflation (actual)
Q4
Core inflation
Q3
12
(годишни стапки, во %)
11
10
9
8
7
6
5
4
3
2
1
0
-1
-2
-3
Q2
(in percentage points)
Inflation, comparison of actual with projection
Q1 2007
Contribution of food and energy prices to annual
rate of inflation
BALANCE OF PAYMENTS
- current аccount Current account
1.1
0.9
-1.0
-2.6
-1.4 -1.2
-1.4
-0.7
-1.0 -0.9
-2.0
-2.8
-3.2
-4.7
Q2
Q2*
Q1 2011
Q4
Q3
Q2
Q1 2010
Q4
Q3
Q2
Q1 2009
Q4
Q3
-6.0
* April projection.
6
Current account, by components
(% of GDP)
4
 Downward correction in the net-inflows
from private transfers):
 net-purchase of cash registered an
annual decline of 12.2%, as opposed
to 9.5% according to the April
projection.
(% оf GDP)
Q2
 Positive developments:
 in the trade balance (lower
deficit);
 in services (estimated higher
surplus);
 in income (estimated lower deficit).
2
1
0
-1
-2
-3
-4
-5
-6
-7
Q1 2008
 In the second quarter of 2011, the
current account deficit is estimated at
0.9% of GDP (1% of GDP in the April
projection).
2
4.4 4.3
april projection for Q2
july projection for Q2
0.2 0.3
0
-0.4 -0.3
-2
-4
-6
-5.2 -5.1
Trade deficit
Services, net
Income, net
Current
transfers, net
BALANCE OF PAYMENTS
- capital and financial account  Capital net-inflows* in Q2 2011
are estimated at 0.04% (as
opposed to 0.3% of GDP in the April
projection), mainly due to:
* Capital net-inflows do not include the official foreign reserves, past due
liabilities, currencies and deposits of the monetary authority and IMF utilizations
and repayments, i.e. they are according to the analytical presentation of the
balance of payments.
5.8
6
5
4
2.7
2.5
2.9
2.8
1.9
2
0.6
1
1.5
1.2
0.8
0.5
-0.9
0.3
* April projection.
Q2*
Q1
Q4 2010
Q3
Q2
Q1
Q3
Q4 2009
-2
Q2
-1
Q1
0
0.04
Q2 2011
3
3.5
Q4 2008
current account deficit was
almost entirely covered from the
foreign reserves.
(% of GDP)
Q3
 In Q2 2011, financing of the
7
Q2


lower estimated FDI (due to the
effect of dividend repatriation, in April
2011);
lower net-foreign borrowing;
higher than expected withdrawal of
cash foreign currency of households
from the banking sector.
Q1

Capital and financial account, without
official reserves
MONETARY AND CREDIT AGGREGATES
Broad money M4 and total loans
(annual changes, in %)
45
 In
Q2
2011,
accomplished
annual
growth rates of the M4
money supply and of
total bank loans to
the private sector of
8.6%, respectively,
are at the level of the
April projection.
Broad money (actual)
40
Broad money (april projection)
Total loans (actual)
35
Total loans (april projection)
30
25
20
15
10
5
Q2
Q1
2011
Q4
Q3
Q2
Q1
2010
Q4
Q3
Q2
Q1
2009
Q4
Q3
Q2
-5
Q1
2008
0
 Data on the banking system for Q1 2011 point to maintaining of its
stability and soundness:
 After the initial improvement of the indicators for the credit portfolio quality at the end of
2010, during the first quarter of 2011, the share of the non-performing credits in the total
credits registered minimum change (9.4% at the end of the first quarter as opposed to
9.3% as of December 31, 2010);
 Indicators of liquidity are still on a satisfactory level;
 Capital adequacy ratio is still maintained at a level twice higher than the minimum, and in
Q1 it equaled 16.8%.
2. REVISION OF MACROECONOMIC
PROJECTIONS FOR 2011
 Faster growth
expectations;
of
economic
activity
compared
to
previous
 Slowdown of inflation in the second half of the year and
approximation to the threshold of range projected in April;
 Current account deficit reduction and perceptions for faster growth
of capital inflows;
 Faster growth of foreign reserves in 2011 compared to previous
expectations;
 Moderate upward revision of monetary and credit aggregates.
Maintenance of generally favorable monetary policy environment in the
second half of 2011, yet with risks that create a need for further alert
monitoring of economic developments in the next period.
ECONOMIC ACTIVITY
 In Q3 2011, the annual GDP growth is estimated to 2.7%, given the expectations for:
 personal consumption growth (improved expectations, favorable labor market
developments, further annual uptrend of the employment rate, and slower
reduction of real wage);
 further growth of investment activity and exports.
 Moderate upward revision of the GDP real growth projection for 2011 to
roughly 3.5% (3% in April), in environment of positive contribution of the
domestic demand and negative contribution of the net exports.
Contributions of components to annual GDP real
growth
15
(in percentage points)
10
10
8.1
6
4
-5
2
-10
0
Private consumption
Government consumption
Q1 Q2
2009
* July projection.
Q3
Q4
Q1 Q2
2010
Gross investments
Net-exports
Q3
Q4
Q1 Q2* Q3*
2011
5.1
4.4
6.1
Domestic demand
Net-exports
10.6
8
0
-20
(in percentage points)
12
5
-15
Contributions of Domestic demand and
Net-exports to annual GDP growth
GDP
8.2
6.4
5.0
3.5
0.7
1.0
-2
-3.0
-3.2
-4.5
-4
3.0
1.8
-1.0
1.1
-4.0
3.5
-2.9
-6
2005
2006
2007
2008
2009
2010
2011*
*July projection.
Risks surrounding the growth alleviate and primarily reflect the debt crisis in the
peripheral countries of the Euro area, with potential effects on the external demand,
exports, investments and expectations.
INFLATION
 In Q3 2011, the inflation is expected to slow down to 4.4% due to the slower growth of global
food prices and stabilization of oil prices.
 Price increase will further result primarily from the demand factors, while the average
inflation rate is expected to swing around 4.5% throughout 2011 (threshold of the
April range) reflecting the lower performances and downward revisions of global prices;
 Lack of inflation pressures from domestic demand, given the below-potential economic growth.
 In 2011, the core inflation is expected to be stable: around 1.2%.
Inflation projection
(annual rates, %)
starting point for
April projection
4.1
Q4
Q3
Q2
Q1 2011
Q4
Q3
Q2
Q1 2010
Q4
Q3
Q2
Q1 2009
Q4
Q3
Q2
Q1 2008
Q4
Q3
Q2
4.7
starting point for
July projection
Q1 2007
11
10
9
8
7
6
5
4
3
2
1
0
-1
-2
-3
Inflation (actual)
April projection (average rate 4.5%)
April projection (average rate 5%)
July projection
Notwithstanding
the
still
present
uncertainty, risks clouding the inflation
projection are being perceived as mostly
downward and related to the potential
slower growth of foreign food and
energy prices.
EXTERNAL SECTOR/1
0.9(%
-1.0
-2.6
of GDP) 1.1
-1.4 -1.2
-1.4
0.6
-0.7
-0.9
-2.0
-2.3
-2.8
-3.2
-4.7
Q4*
Q3*
Q2
Q1 2011
Q4
Q3
Q2
Q1 2010
Q4
Q3
Q2
Q1 2009
Q4
Q3
Q2
-6.0
* July projection.
Current account, by components
(% of GDP)
Trade deficit
* July projection.
Services, net
Income, net
-6.5
Q4*
Q2
Q1 2011
-4.3
Q4
-5.6 -4.6 -6.6 -6.2 -5.1
Q3*
5.1 4.5
3.5 4.3
-4.3
Q3
-6.9
5.0 6.0 4.9
Q2
-5.1 -4.5
3.7
Q1 2010
Q1 2009
-7.0 -6.3 -7.4 -6.7
Q4
-5.6
6.0 5.1
Q4
3.1 1.9 3.9
Q3
5.0
Q2
2.6 3.9
Q3
8
6
4
2
0
-2
-4
-6
-8
-10
Q2
 In Q3 2011, the capital and financial account
expects net outflows of 0.4% of GDP.
Current account
Q1 2008
 On annual basis, this implies surplus reduction
of 0.6 p.p. of GDP, mainly due to the perception
for lower net inflows from current transfers (by
nearly 1 p.p. of GDP), whereas the trade
balance is expected to register minor annual
improvement.
2
1
0
-1
-2
-3
-4
-5
-6
-7
Q1 2008
 Q3 2011 expects positive current account
balance of 0.6% of GDP, which is a common
seasonal dynamics.
Current transfers, net
EXTERNAL SECTOR/2
 To the end of 2011, the current account
deficit is expected to equal 5.5% of
GDP, which is a downward correction of 0.6
p.p. of GDP compared to April projection.
30
Foreign reserves are expected to increase
more rapidly to the end of 2011 compared to
the April projection, and accordingly, to
cover four-month imports of the next year.
*
The amount of April projection has been adjusted for certain reentries.
(% of GDP)
20
10
0
 The capital and financial account
expects net inflows of 9.4% of GDP
throughout the year, compared to the
April projection of 8.8% of GDP*. The
upward correction mainly results from the
assumption for additional government
borrowing;
Current account, by components
-10
15.3
-4.0
-17.9
14.1
-8.1
-20.6
17.7
18.8
17.0
-2.5
-0.4
-7.1
-17.8
-19.1
-19.8
14.7
-12.8
-26.2
16.9
-6.7
-23.1
19.7
-2.8
-21.1
17.6
17.4
-6.1
-5.5
-22.7
-22.2
-20
-30
Trade deficit
Services, net
Income, net
Current transfers, net
Current account
* April projection. ** July projection.
Risks surrounding the balance of
payments projection primarily include
the effectuation of projected capital
inflows, the growth of export demand
and the developments of the global oil
and food prices due to their impact on
the import prices.
MONETARY AND CREDIT GROWTH
Q3 2011 expects:
 Further enhancement of money supply M4 (11.9%
annual growth in September 2011, compared to 12.2%
projected growth of total deposits) and
 Acceleration of the credit growth rate up to 10% in
September, on annual basis.
Broad money M4
(annual changes, in %)
30
Actual
25
April projection
July projection
20
15
11.4
10
10.7
5
Q4
Q3
Q2
Q1 2011
Q4
Q3
Q2
Q1 2010
Q4
Q3
Q2
Q1 2009
Q4
Q3
Actual
April projection
July projection
12.5
Q4
Q3
Q2
Q1 2011
Q4
Q3
Q2
Q1 2010
Q4
Q3
Q2
Q1 2009
Q4
12.0
Q1 2008
 Annual credit growth of 12.5% compared to 12%
April projection.
45
40
35
30
25
20
15
10
5
0
Q3
 Growth of money supply М4 of 11.4%, on annual
basis, compared to 10.7% April projection.
Total loans
(annual changes, in %)
Q2
Moderate upward revision of monetary and
credit aggregates throughout 2011 compared to
the April projection, with the monetary growth
rate being faster:
Q2
-5
Q1 2008
0
Risks surrounding the projected monetary and credit growth are mainly related to the pace of
recovery of the real economy and risk assessments made by the banks, with the inflation dynamics
remaining additional risk factor (although with lower significance compared to the April projection)
in the next period.
CONCLUSION
 We expect the favorable macroeconomic developments to continue in the
second half of 2011, and to create constructive monetary policy
environment.
 Taking account of the current assessments, the NBRM key interest rate
remains unchanged. Such assessment mainly reflects:
- stabilization of inflation rate,
- downward revision of current account deficit,
- higher projected level of foreign reserves and
- relatively moderate lending activity of the banks.
 Monetary policy risks arise from the debt crisis risk in the Euro area and
their potential implications on the domestic economic activity and
expectations, the inflation risks, as well as the risks surrounding the
expected capital inflows and the level of foreign reserves.
 NBRM keeps on monitoring the economic developments on a regular
basis, for the purposes of undertaking timely measures and actions.