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  • Economic Analysis Department

    Warsaw / 9th March 2020

    Inflation and economic growth projection

    of Narodowy Bank Polski

    based on the NECMOD model

  • Inflation and economic growth projection of the NBP

    Projection 2020 – 2022

    ▪ Economic condtions

    abroad

    ▪ Polish economy

    ▪ GDP

    - Consumption demand

    - Investment demand

    - Foreign trade

    - Changes between

    rounds

    ▪ Inflation

    - Changes between

    rounds

    Uncertainty

    Outline:

    2

    1 Projection 2020 - 2022

    2 Uncertainty

    Outline

  • Inflation and economic growth projection of the NBP 3

    March projection compared to November projection – main changes

    Impact on GDP Impact on CPI

    Weaker global economy outlook due to the outbreak of coronavirus epidemic

    Signing Phase One deal between US and China

    Lower than expected economic growth in Poland in 2019Q4

    Households have become more cautious about spending

    Stronger than expected in November increase in prices of waste disposal services

    Higher than assumed in the budget bill excise tax on alcoholic beverages and tobacco

    products from 1st January 2020 and planned introduction of additional fees on beverages

    containing substances used for their sweetening properties, as well as additional fees on

    sales of alcoholic beverages of up 300ml in volume

    Higher pork prices growth in global markets in 2019-2020 due to the escalation of the ASF

    epidemic and slower than expected process of rebuilding the pig herd in China

    Higher than expected increases in tariffs on the sale and distribution of electrical energy

  • Inflation and economic growth projection of the NBP 4

    The impact of coronavirus outbreak on the global economy and Poland

    ▪ Assumptions in the baseline scenario of the projection: significant slowdown in GDP growth in China and the global economy,

    however, concentrated mainly in the first and beginning of the second quarter of this year.

    ▪ The most important canals of coronavirus epidemic impacting global economy:

    ▪ Slump in global demand for transport, tourism and entertainment services - hence – lower oil prices leading to deterioration of

    economic outlook in countries dependent on the income from sales of this commodity.

    ▪ Decrease in demand for non-food goods, so far mainly in China and north Italy, later probably also in other countries.

    ▪ Heightened volatility in financial markets, deterioration in business sentiment.

    ▪ In the immediate vicinity of Poland: slowdown in services sector in some big euro area economies and in manufacturing sector

    in Germany.

    ▪ A risk of further reduction of manufacturing production and quarantine of more regions in China, difficulties in global value chains,

    obstacles for producers worldwide dependent on Chinese subcomponents.

    ▪ In case of more severe coronavirus epidemic – deeper downward revision in the forecast for economic growth in Poland (pessimistic

    scenario – see the balance of risks).

    ▪ Further spread of the coronavirus epidemic will most likely lead to lower inflation:

    ▪ lower inflation will be a result of decreasing demand for a large part of services and non-food goods, intensification of promotions

    and extraordinary price reductions

    ▪ the supply effect, related to a reduction in the supply of some intermediate goods and an increase in demand for some food

    products, may be conducive to rising inflation.

  • Inflation and economic growth projection of the NBP 5

    Impact of stronger demand and wage pressure on core inflation in line with expectations.

    Core inflation projection in subsequent projection rounds (y/y, %)

    -0.5

    0

    0.5

    1

    1.5

    2

    2.5

    3

    16q1 16q3 17q1 17q3 18q1 18q3 19q1 19q4

    core inflation Nov 19 Jul 19 Mar 19 Nov 18

    Jul 18 Mar 18 Nov 17 Jul 17 Mar 17

    Source: NBP calculations

  • Inflation and economic growth projection of the NBP

    Projection 2020 – 2022

    ▪ Economic condtions

    abroad

    ▪ Polish economy

    ▪ GDP

    - Consumption demand

    - Investment demand

    - Foreign trade

    - Changes between

    rounds

    ▪ Inflation

    - Changes between

    rounds

    Uncertainty

    Outline:

    6

    Projection 2020-2022

    Economic conditions abroad

  • Inflation and economic growth projection of the NBP 7

    External GDP growth will remain sluggish in the coming years

    Import dynamics in the global economy (%, y/y, 3-m. average)

    Source: Datastream, Markit Economics, OECD, CPB Netherlands, NBP calculations.

    Global GDP (%, annualized q/q)

    GDP y/y, % 2020 2021 2022

    Euro area 0.9 (1.1) 1.3 (1.3) 1.3

    Germany 0.6 (0.6) 1.3 (1.2) 1.2

    Great Britain 1.1 (1.2) 1.0 (1.3) 1.3

    US 1.9 (1.7) 1.8 (1.7) 1.9

    China 5.1 (5.8) 6.5 (5.7) 5.7

    NBP forecast (values from the November 2019 projection are given in brackets)

     Signing trade agreement Phase One between China and United

    States.

     Monetary and fiscal loosening in the global economy.

     Spread of coronavirus epidemic.

     Prolonging period of slowdown in Germany.

     Increase in trade barriers between Great Britain and European

    Union from 2021.

    -2

    0

    2

    4

    6

    2017 2018 2019

    US Japan Euro area China Asian emerging markets Other economies Global economy

    0

    1

    2

    3

    4

    5

    2013 2014 2015 2016 2017 2018 2019 2020P 2021P

    Indicators with values higher than in the November projection are marked green, and indicators with lower values are marked red.

  • Inflation and economic growth projection of the NBP 8

    In the euro area the GDP growth remains sluggish, however economic conditions in various sectors

    differ.

    Source: Eurostat, European Commission, Markit Economics, Datastream, NBP calculations

    Business climate in the euro area (PMI, p.) Wages and employment in the euro area

    Investment in machinary and equipment vs Eurozone exports of goods

    (index, 2015=100) GDP growth in the euro area (% and p.p., y/y)

    Note: The chart does not include Ireland.

    -0.5

    0.0

    0.5

    1.0

    2017 2018 2019 Private consumption Public consumption GFCF

    Change in inventories Net exports GDP

    45

    48

    50

    53

    55

    58

    60

    2018 2019 2020

    Manufacturing Services Construction

    6

    7

    8

    9

    10

    11

    12

    13

    -3

    -2

    -1

    0

    1

    2

    3

    4

    2005 2007 2009 2011 2013 2015 2017 2019

    Employment (%, y/y) - LHS Wages (%, y/y) - LHS Unemployment rate (%) - RHS

    -20

    -15

    -10

    -5

    0

    5

    10

    15

    2007 2009 2011 2013 2015 2017 2019

    Investment in machinery and equipment Export of goods

  • Inflation and economic growth projection of the NBP 9

    Economic growth in the United States will be lower than in recent years.

    Source: BEA, BLS, US Census, NAHB, CBO, ISM, NBER, NBP calculations.

    GDP dynamics in US

    (% and p.p, q/q saar)

    ISM Index for manufacturing and services (points, sa) Private investment outlays dynamics (%, and p.p. q/q, saar)

    Rate of unemployment and its natural level according to CBO (%, sa)

    -3 -2 -1 0 1 2 3 4 5 6

    2017 2018 2019 Private consumption GFCF

    Changes in inventories Net exports

    Public investment GDP

    3

    4

    5

    6

    7

    8

    9

    10

    11

    2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

    Rate of unemployment Natural rate of unemployment

    30

    35

    40

    45

    50

    55

    60

    65

    2007 2009 2011 2013 2015 2017 2019

    Manufacturing Services

    -9

    -6

    -3

    0

    3

    6

    9

    12

    15

    2014 2015 2016 2017 2018 2019

    Residential construction Intellectual property Machinery and equipment Non-residential investment Total private investment

  • Inflation and economic growth projection of the NBP 10

    Trade agreement betweeen China and US as well as ratification of USMCA trade deal reduce

    uncertainty related to trade policy. China’s exports to the United States (%, 3m-average y/y)

    Source: US Census, USTR, NBP calculations.

    Share of US exports to Canada and Mexico (% of total exports from US) and share of

    imports from Canada nad Mexico to US

    (% of total US imports) in 2019

    Duties imposed by US on China*

    Value of additional Chinese imports from the United States according to

    the first stage of agreement (mld USD)

    0

    5

    10

    15

    0

    2

    4

    6

    Jul-18 Sep-18 Nov-18 Jan-19 Mar-19 May-19 Jul-19 Sep-19 Nov-19

    Value of duties imposed by US (bn USD, LHS)

    Share of duties value in the value of Chinese export to US (%, RHS)

    *) Duties imposed from July 2018 (the beginning of „trade war”

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