Download Revision of the macroeconomic projections

November, 2015

Macroeconomic projections for the period 2015 2017
• Key exogenous assumptions for the projections
• Baseline macroeconomic scenario for the period 2015 –
2017

Slower global growth than expected due to slow-down in the economic activity in the
emerging countries and slower than expected recovery in advanced countries.

Downward risks to the projected growth more pronounced compared to April
projection, mainly related to:
•
•
•
Higher risk aversion and increased volatility in the global financial markets
Sharp and unexpected changes in primary commodities prices
The risks for stagnation and persistent low inflation in advanced countries still present
Global growth and growth in the euro zone
(annual changes in %)
6
0.3
4
0.2
2
0.1
0
0
-2
-0.1
-4
-0.2
-6
-0.3
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
World changes in p.p. (right scale)
EA changes in p.p. (right scale)
World October 2015
EA April 2015
World April 2015
EA October 2015



Foreign effective demand growth rate in 2015 unchanged compared to April
Slight downward revision for 2016, on the backdrop of the weaker prospects for the
Greek economy
The expectations for gradual recovery of the foreign demand unchanged
2.5
2.0
1.5
1.3
0.5
-0.5
(weighted contributions to annual foreign effective demand growth rates)
2.0
1.5
1.4
0.8
-0.2
-0.1
Slovenia
1.5
Croatia
1.0
0.8
1.0
0.0
Decomposition of foreign effective demand growth
Foreign effective demand
(annual growth rates, in %)
1.8
1.3
Bulgaria
Serbia
0.5
Netherlands
0.0
Italy
-0.5
-1.0
Spain
Greece
-1.0
-1.5
Germany
-1.5
-2.0
2013
2014
April 2015
2015
2016
2017
October 2015
Belgium
-2.0
2013
2014
2015
2016
2017


Foreign effective inflation forecast – minor downward correction relative to the
April forecast
Lower pressures on domestic prices than previously expected
Decomposition of foreign effective inflation
Foreign effective inflation
(annual rates, in %)
3.0
2.5
1.9
2.0
1.9
1.0
1.4
0.0
-0.5
2014
April 2015
Italy
Croatia
0.0
-0.1
2015
Serbia
0.5
Greece
-0.5
-1.0
2013
Slovenia
1.5
1.0
0.0
0.0
Austria
2.0
1.5
1.7
0.0
Bulgaria
2.5
1.5
0.5
(contributions to annual foreign effective inflation rates)
3.0
2016
2017
October 2015
Germany
-1.0
France
-1.5
2013
2014
2015
2016
2017
Terms of trade picture more mixed: lower energy and food prices –favorable change; lower metal
prices – adverse shock for the terms of trade
2016
-20
2015
-10
-60
2010
0
-40
2016
10
-20
2015
20
0
April 2015
2014
2010
30
20
2014
40
2013
2016
2015
2014
-30
40
2012
-10
60
2011
10
October 2015
50
April 2015
2010
30
Nickel prices, in EUR
(annual growth rates, %)
60
October 2015
80
50
2016
2015
Corn price, in EUR
(annual growth rates, %)
100
April 2015
2013
2014
-20
2013
-40
2012
-30
2011
0
-10
2010
-20
2013
10
2016
-10
2012
20
2015
30
0
2011
10
April 2015
2014
40
2011
20
October 2015
October 2015
50
April 2015
Wheat price, in EUR
(annual growth rates, %)
Copper prices, in EUR
(annual growth rates, %)
2013
October 2015
30
70
60
2012
Price of Brent Crude Oil, in EUR
(annual growth rates, %)
40
2012

Lower import pressures on domestic prices in 2015-2016 compared to the previous forecast
2011

The environment of low commodity prices persists further, with prices of primary
commodities lower than expected in April
2010

Economic growth for 2015-2016 has been revised downwards due to the worsen global
prospects and higher uncertainty in the domestic economy connected with the political instability…
…yet, we expect solid growth over the forecasting period ranging from 3.2% in 2015
to 4% in 2017
 The assumptions on the fundamentals in
the growth forecast unchanged:
 continuation
of the strong government
investment incentive
 positive effects of the existing and expected
FDI-based facilities
 continuation of the positive trends in the labor
market
 solid credit support
 Moderate acceleration of growth over the
forecasting period (2015-2017)
 More growth conducive external environment
 Further positive effects of the structural
changes on the export sector
 More stable domestic environment
GDP
(annual growth rates, in %)
5.0
4.1
4.5
4.0
3.0
3.2
3.5
4.0
2.0
1.0
0.0
-1.0
2010
2011
2012
2013
April 2015
2014
2015
2016
October 2015
2017



GDP growth driven mainly by export and investments, and private
consumption in addition
Moderate growth in public consumption in 2016-2017, in accordance with the
medium term fiscal strategy
Higher exports and domestic demand will result in increase in imports over the
projection period leading to negative contribution of net exports in 2016-2017.
FORECAST COMPARISON
CONTRIBUTIONS TO ANNUAL GROWTH
CONSUMPTION
INVESTMENTS
EXPORTS
IMPORTS
GOVERNMENT
CONSUMPTION
Oct.15 Apr.15 Oct.15 Apr.15 Oct.15 Apr.15 Oct.15 Apr.15 Oct.15
2015
2016
2017
1.4
1.6
2.2
2.2
2.2
0.7
2.8
2.1
2.7
2.9
1.6
2.9
2.0
2.7
3.1
-1.1
-4.0
-2.5
-3.7
-3.8
0.6
0.2
0.2
Apr.15
0.2
0.2
Domestic
demand
Net export
GDP
Oct.15 Apr.15 Oct.15 Apr.15 Oct.15
2.7
4.6
4.5
5.1
5.3
0.5
-1.1
-0.5
-1.0
-0.7
3.2
3.5
4.0
Apr.15
4.1
4.5
Consolidated Budget of Central Government
and Funds
Budget expenditures structure (in %)
90%
80%
14.3
1.9
9.6
1.8
10.7
2.2
11.9
2.3
12.0
2.7
10.4
2.9
61.3
63.2
10.5
3.0
11.7
3.3
11.9
3.5
8.6
3.8
50%
55.6
60.7
60.9
60.8
63.5
61.3
60.7
63.7
3.0
60.9
0%
5.0
Interest
payments
0.0
-5.0
30%
10%
Capital
expenditures
Transfers
40%
20%
(in % of GDP)
12.8
70%
60%
Budget deficit financing
10.0
100%
13.4
11.6
10.3
9.4
9.4
9.3
9.2
10.3
10.6
9.9
10.1
14.9
16.3
15.9
15.6
14.6
14.1
13.7
13.5
13.4
14.0
13.2
Goods and
services
Wages and
salaries
-4.2
-3.6
-3.3
-3.0
-10.0
2014 act.
2015 proj.
domestic debt principal repayment
government securities
foreign loans
budget balance
2016 proj.
2017 proj.
external debt principal repayment
government deposits
privatization receipts
Shares of real GDP components (in %)
90.0
79.4
80.0
77.1
77.4
71.7
72.8
72.4
70.5
71.3
70.0
60.0
57.09
50.36
53.48
50.0
40.0
30.0
56.68
42.0
35.8
25.4
31.0
25.8
61.52
43.0
36.8
23.8
27.7
59.50
53.94
40.7
30.0
25.1
46.0
27.3
58.75
46.1
Gross fixed capital formation structure by type of
ownership
69.6
60.64
69.1
60.76
47.3
47.4
27.1
70.0
60.0
29.0
29.8
80
50.0
74
76
66
34
40.0
30.0
20
24
26
2008
2009
75
72
71
73
29
28
25
27
2011
2012*
2013*
2014*
20.0
10.0
20.0
10.0
(in current prices, in %)
80.0
16.5
16.5
14.4
15.4
15.3
15.7
15.7
2012
2013
14.9
15.0
14.7
0.0
2008
2009
2010
2011
Private cons.
Government cons.
Export
Import
2014
2015
Investment
2016
2017
0.0
2007
2010
state
private
*Data prepared according to ESA 2010. Source: SSO.
Contributions of individual sectors of activities to the total number
of employees change in the period 2015-H1/2008 (in p.p)
(in %)
35
14.7
16.0
Unemployment rate
other sectors of activities*
34
financial intermediation
33
transport and communications
32
hotels and restaurants
31
8.0
trade
30
6.0
construction
29
4.0
industry
14.0
12.0
10.0
28
27
agriculture
2.0
total economy (in %)
0.0
26.8
26
25
employed
*Оther sectors of activities include: public administration and defence, compulsory social
security, education, health and social work activities, activities of households as
employers, as well as activities of extraterritorial organisations and bodies.
Productivity and ULC
(annual growth rates, in %)
Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1
2008
2009
2010
2011
2012
2013
2014
2015
Source: State Statistical Office, Labor Force Survey
Gross-wages and number of employees
(annual growth rates, in %)
4.5
4.0
3.0
2.5
2.0
1.5
1.0
0.5
0.0
-0.5
-1.0
-1.5
-2.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
2010
2011
2012
2013
Productivity
2014
2015
ULC
Source: State Statistical Office and NBRM calculations
2016
2017
0.0
2010
2011
2012
2013
2014
Nominal wages
Source: State Statistical Office and NBRM projections
2015
Employees
2016
2017
Inflation forecast for 2015 and 2016 has been revised downward to around 0% and
1,5%...
…amid lower initial conditions and downward adjustments in the key exogenous
assumptions
 Inflation is expected to gradually pick-up in 2016 and 2017. The point forecast for the
2016 and 2017 stands at around 1.5% and 1.6%, respectively…
…driven by the import prices and the recovery in aggregate demand

Output gap and inflation
(in %)
6
Inflation rate
(in %)
6.0
5
5.0
4
4.0
3
3.0
2
2.0
1
1.0
0
0.0
-1
-1.0
revisions (in p.p.)
-2
-2.0
Inflation (October 2015)
Output gap (October 2015)
-3
Inflation (October 2015)
-4
2011
2012
2013
2014
2015
2016
2017
-3.0
Inflation (April 2015)
-4.0
2011
2012
2013
2014
2015
2016
 Lower current account deficit, compared to the previous forecast, being a result of all of its components
 Moderate current account deficit in the following three year period of bellow 2% of GDP on average
Decline in 2015, amidst lower energy deficit, positive impact of the new facilities, while the traditional segments were worse
off
 Mild widening of the current account within the next two years

 Reduction of the relative share of private transfers in GDP
 Larger primary income deficit
 No major changes in the trade deficit
Current account of the balance of payments
(% of GDP)
30.0
October 2015
30.0
20.0
20.0
10.0
10.0
0.0
0.0
-2.4
-3.9
-10.0
-0.4
-2.0
-3.2
-1.7
-0.8
-0.5
-1.9
-1.6
-2.4
-3.1
-10.0
-6.8
-6.9
-7.9
-2.5
April 2015
-12.7
-20.0
-20.0
-30.0
-30.0
2003
2004
2005
2006
2007
Trade balance of goods and services
2008
2009
2010
Primary income
2011
2012
2013
Secondary income
2014
2015
2016
2017
Current account deficit
2015
2016



0.0
Relatively stable trade deficit, with…
…larger import pressures, driven by investments mainly and export-related imports, but also…
…diverse performances of the traditional export sector, but general recovery expected
- positive impact of structural changes to be kept and strengthen further
- more conducive global environment
Trade balance*
(% of GDP)
-12.7
-18.0
-18.6
-15.0
-14.3
-14.1
April 2015
October 2015
0.0
-12.6
-12.2
-12.6
-12.7
-12.7
-5.0
-5.0
-10.0
-10.0
-15.0
-9.6
-7.5
-11.0
-20.0
-25.0
-11.6
-8.5
-6.6
-6.7
-6.5
-19.3
-19.2
-21.5
-22.5
-24.4
-25.1
-20.6
-19.2
-25.0
2008
6.6
6.9
19.
1
20.
0
-30.0
Non-energy trade balance
2007
13.
1
-25.7
-29.0
-35.0
-15.0
-20.0
-6.5
-22.3
-30.0
-10.0
-9.0
12.
5
2009
* According to foreign trade statistics
2010
Energy trade balance
2011
2012
Trade balance
2013
2014
-35.0
2015
2016
2017
2015
2016
Export diversification by products and trading partners
Export by the new companies in the technological industrial
development zones
(share of total export, in %)
45,0
Share of export by trading partners in total export
(in percent)
45,0
40,0
40,0
35,0
35,0
30,0
30,0
25,0
20,0
25,0
15,0
20,0
2011
2014
51,6
4,1
34,7
9,6
I-VIII 2015
100%
90%
2014
2013
80%
2012
70%
2011
23,5
4,4
22,5
4,7
27,6
5,7
70,4
7,1
10,9
11,5
2010
50%
2009
40%
2008
30%
44,6
20%
2006
2005
10%
2004
0%
0,0
Traditional export products
20,0
40,0
Energy
60,0
80,0
High value added export products
100,0
Other
40,0
4,6
3,9
4,8
2007
18,7
19,4
7,9
9,9
21,4
5,9
19,2
18,2
7,8
5,0
6,8
7,4
7,8
2007
2008
28,5
29,6
27,5
25,9
11,4
7,5
7,7
6,4
10,5
2009
16,7
16,9
8,7
6,4
6,4
6,6
9,8
8,3
8,5
2010
2011
2012
7,7
24,2
24,0
19,3
Chemical products
6,3
17,1
13,3
21,2
60%
Average 2004-2010
Serbia
Share of export by categories in total export
(in percent)
Export structure
(share in total export, %)
Average 2011-2015
Kosovo
* Starting from 2013 Croatia is included in the EU countries.
Other countries
2010
2013
Bosnia and Herzegovina
2009
2012
I-VIII 2015
Other EU countries
Q2
VII+VIII
Q1 2015
Q4
Q3
Q2
Q1 2014
Q4
Q3
Q2
Q1 2013
Q4
Q3
Q2
Q4
Q1 2012
Q3
Q2
Q4
Q1 2011
Q3
Q2
Q1 2010
0,0
Croatia
5,0
Greece
0,0
Germany
10,0
Bulgaria
5,0
Italy
10,0
15,0
18,8
19,5
2,5
6,5
21,1
2013
21,4
1,8
5,4
15,8
2014
Miscellaneous manufactured articles
other transport equipment
Road vehicles
Electrical machinery, apparatus and appliances, n.e.s., and electrical parts thereof
22,7
1,2
5,3
10,2
I-VIII
2015



The structure of capital inflows in the 2015-2017 period, mainly a combination of foreign
investment and borrowing of the public sector
After the growth of the gross external debt in 2014, a stabilization expected in the period
ahead
Expected increase in foreign reserves in the next three years with adequacy ratios
remaining in the safe zone
14.0
Financial account, net flows
(% of GDP)
October 2015
12.0
14.0
April 2015
12.0
11.9
10.0
10.0
9.7
9.4
8.0
8.0
7.6
6.0
6.0
4.0
6.0
6.8
6.4
5.1
5.2
4.7
2.0
4.0
4.3
4.1
2.0
2.8
1.8
0.0
0.0
0.8
-0.3
-0.6
-2.0
2003
2004
2005
2006
2007
2008
2009
Direct investment
2010
2011
2012
Financial account
2013
2014
2015
2016
2017
-2.0
2015
2016
Foreign reserves adequacy indicators remain in the safe zone
Foreign reserves adequacy indicators
October 2015
35,00
5,2
4,9
30,00
25,00
5,00
4,7
4,4
4,3
4,1
4,0
5,1
4,9
4,6
6,00
4,3
4,00
20,00
3,00
15,00
25,0
10,00
1,1
23,6
24,1
0,9
0,9
1,0
2008
2009
2010
22,1
27,4
1,2
28,9
28,6
24,6
1,0
1,1
1,1
26,5
25,1
25,5
1,3
1,3
1,3
2,00
1,00
5,00
,00
,00
2007
2011
2012
2013
2014
2015
Stock of foreign reserves (% of GDP)
Monthly coverage of following year's imports of goods and services
Foreign reserves/ short-term debt, with residual maturity
2016
2017
External debt ratios expected to stabilize in the forthcoming period
80,0
Gross external debt indicators
October 2015
200,0
180,0
70,0
160,0
60,0
140,0
50,0
120,0
100,0
40,0
30,0
20,0
45,4
50,2
55,9
45,7
46,6
57,8
61,2
66,1
64,3
70,2
69,0
68,9
69,8
48,8
80,0
60,0
40,0
10,0
20,0
0,0
0,0
2004
2005
2006
2007
2008
2009
Gross external debt/ GDP (left scale)
2010
2011
2012
2013
2014
2015
2016
2017
Gross external debt / Export of goods and services (right scale)






Credit support to the private sector proceeded in 2015, albeit at a slightly slower pace
compared to the forecast
Slower than expected growth in deposits, amidst heightened foreign and domestic risks
The downsize of the sources of financing, and the unfavorable balance of risks resulted in lower
credit forecast compared to April
Yet, the new forecast still envisages solid credit growth of 7.7% and 7.3% in 2015 and 2016
respectively and acceleration 8.3% in 2017
Further increase in financial intermediation: loans/GDP in 2017 around 52.4% (an increase of
around 11 percentage points in the crisis period after 2008)
The banking system remains stable, with high capital adequacy ratio (16.2% as of June 2015),
high liquidity and relatively stable share of non-performing loans (11.5% as of June 2015)
*Negative net-percentage is presenting easing of the credit conditions and decreasing credit demand.
Positive net-percentage is presenting tightening of the credit conditions and increasing credit demand.
–
Preventive measures towards Greece:
•
–
In June 2015, NBRM introduced measures for prevention of capital outflows to Greece,
that are time-bound (valid for 6 months) and with the role to counter possible
contagion risks from Greece.
Reserve requirements:
•
In August 2015, NBRM has modified the reserve requirements setup by decreasing the
reserve ratio on households deposits in Denar with contractual maturity over one year
from 8% to 0%.
Latest macroeconomic scenario for 2015-2017 does not change fundamentally the
monetary policy environment:

Lower, but still solid economic growth supported by domestic banks’ credit activity

Inflation to remain low and stable


“Benign” external position assuming moderate increase in CA deficit and adequate level of
gross foreign reserves, enabling sufficient buffers against potential unforeseen shocks
Risks remain skewed to the downside related to rising global risks and domestic political
uncertainties
Further monetary adjustments contingent on the external sector developments and
the gross foreign reserves dynamics






Expected growth for 2015-2016 has been revised downwards due to worsen global
prospects and higher uncertainty in the domestic economy connected with the
political instability
Yet the new forecast continues to envisage strong growth rates, driven by exports
and investment
Downward adjustment of the inflation projection, due to supply side factors
Smaller current account deficit compared to the April projections. After the
narrowing in 2015, we retain the assessments for a moderate widening in the next
two years (2016-2017)
Gross foreign reserves are expected to mildly increase over the 2015-2017 period,
and remain at an adequate level
Sensitivity of the scenario to possible changes in the global economic environment
and potentially rising political instability at home