Inflation and economic growth projection of Narodowy Bank ... · Inflation projection of the NBP...

Economic Analysis Department

Warsaw / 13 November 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

November GDP projection compared to July projection

-0.4

-0.2

0

0.2

0.4

-0.4

-0.2

0

0.2

0.4

2017 2018 2019

Private consumption Public consumption

Gross capital formation Net exports

GDP

Source: GUS data, NBP calculations.

Higher private consumption growth (better-than-expected

data for 2017Q2 and more favourable readings and the

prospects of wages and employment growth).

Higher contribution of net exports to GDP growth in 2017

(the positive balance of payments for July-August 2017).

Higher growth in investment in 2018 as a result of the

postponement of some public sector’s expenditures.

Downward revision of the inventory forecast in 2017H2.

Lower growth in current expenditures in the public finance

sector (wage freeze in some sectors of public administration

in 2018 – Draft Budget).

GDP y/y, % 2017 2018 2019

July 2017 4.0 3.5 3.3

November 2017 4.2 3.6 3.3

p. p.


November CPI projection compared to July projection


CPI y/y, % 2017 2018 2019

July 2017 1.9 2.0 2.5

November 2017 1.9 2.3 2.7

-0.4

-0.2

0

0.2

0.4

-0.4

-0.2

0

0.2

0.4

2017 2018 2019

Core inflation Food prices

Energy prices CPI inflationp. p.

Higher prices of energy commodities in the global markets.

Lower availability of some agricultural products in the

domestic market.

Increase in demand and cost pressure in the long term.

Higher growth in the prices of agricultural commodities in

the global markets in 2019.

Lower core inflation in 2017 (lower-than-expected growth in

prices of services related to dwellings and transport

services).


Changes between projections

-2

-1

0

1

2

3

4

5

6

-2

-1

0

1

2

3

4

5

6

14q1 15q1 16q1 17q1 18q1 19q1 19q4

r/r, % 90% 60% 30% Jul 17 Nov 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

r/r, % 90% 60% 30% Jul 17 Nov 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 is likely to accelerate in the second half of 2017

17q2 17q3

GDP (y/y) (%) 3.9 (4.0) 4.5 (4.2)

Domestic demand (y/y) (%) 5.6 (4.9) 4.7 (5.0)

Private consumption (y/y) (%) 4.9 (4.7) 4.7 (4.2)

Public consumption (y/y) (%) 2.4 (3.0) 3.3 (3.3)

Gross fixed capital form. (y/y) (%) 0.8 (1.1) 6.1 (7.0)

Exports (y/y) (%) 2.8 (6.9) 6.5 (7.8)

Imports (y/y) (%) 6.1 (9.1) 7.0 (9.4)

Net exports contribution (p.p.) -1.5 (-0.7) -0.1 (-0.7)

Values from the July projection are given in brackets (17q3 seasonally adjusted). Indicators with values

higher than in the July 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 17q3

Industrial and constr. production y/y Retail sales y/y

Real wage fund y/y GDP y/y (RHS)


-3

-2

-1

0

1

2

3

4

5

6

7

-3

-2

-1

0

1

2

3

4

5

6

7

16q1 17q1 18q1 19q1 19q4

Consumption Gross fixed capital formation

Change in inventories Net exports

GDP

In 2017 GDP is expected to grow at 4.2% and in the years 2018-2019 will slow down to the level close

to the potential output growth

Private consumption as the main factor behind GDP growth

over the projection horizon due to further improvement in

the labour market and – in short term - payments of benefits

under the “Family 500 plus” programme

Economic growth driven also by positive gross fixed capital

formation dynamics – supported by the inflow of EU funds

under the 2014-2020 financial framework

The decline in GDP growth in the euro area (negative

contribution of net exports to growth in 2019 as a result of a

slowdown in the domestic demand).

y/y, % 2016 2017 2018 2019

GDP 2.7 4.2 3.6 3.3


Outline:






- Investment demand

- Foreign trade

- Inflation

Uncertainty

10

Economic conditions abroad


The November projection assumes a higher GDP growth in the external environment in 2017-2018

Source: OECD, Thomson Reuters Datastream, NBP calculations.

Consumer sentiment: averages of the group of countries are weighted by the nominal GDP in PPP terms.

Developed economies: The Czech Republic, Denmark, Israel, Japan, Republic of Korea, New Zeland, Norway,

euro area, US, Sweden, Switzerland, UK.

Emerging economies: Brazil, China, Mexico, Poland, Russia, South Africa, Hungary, Turkey.

High readings of current activity indicators and both consumer

and business sentiment.

Stronger economic growth in the euro area.

Higher growth path in China.

Weak long-term global economic outlook due to low productivity

growth and unfavourable demographic trends.

Weak medium-term outlook for global trade growth.

GDP y/y, % 2017 2018 2019

Euro area 2.2 (1.9) 1.9 (1.7) 1.6 (1.6)

Germany 2.2 (1.9) 1.9 (1.7) 1.5 (1.5)

United States 2.2 (2.2) 2.4 (2.5) 2.1 (2.1)

United Kingdom 1.6 (1.4) 1.4 (1.5) 1.7 (1.7)

-2

-1

0

1

2

Jan-12 Aug-12 Mar-13 Oct-13 May-14 Dec-14 Jul-15 Feb-16 Sep-16 Apr-17

Consumer sentiment(deviation from 2000-2017 average)

Developing economies Advanced economies

-2

-1

0

1

2

3

4

5

Oct-14 Feb-15 Jun-15 Oct-15 Feb-16 Jun-16 Oct-16 Feb-17 Jun-17

PMI in industrial production(deviation form 50 pts)

World Advanced economies Developing economies

Values from the July projection (seasonally adjusted) are given in brackets. Figures with values higher than

in the July projection are in green, whereas those with lower value are in red.


In the short run - a lower inflation is expected in Poland’s external environment

12

Source: OECD.

Despite positive output gap consumer price inflation in the US is lower than expected in 2017.

The forecast of inflation in the euro area has been lowered due to revised estimates of potential output growth in the EA.

-2

-1

0

1

2

3

4

Jan-12 Aug-12 Mar-13 Oct-13 May-14 Dec-14 Jul-15 Feb-16 Sep-16 Apr-17

Japan United Kingdom United States Euro area

CPI inflaction in advanced economies (%, y/y)

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17

Japan United Kingdom United States Euro area

Consumer inflation in main developed

economies excluding food and energy

prices (%, y/y)


The heightened uncertainty about inflation outlook due to persistently low wage growth

13

0

2

4

6

8

10

12

14

Jan-12 Oct-12 Jul-13 Apr-14 Jan-15 Oct-15 Jul-16 Apr-17

Unemployment rate in selected developedcountries

Japan United Kingdom

United States Euro area

Despite tight labour markets conditions, wage growth in the main developed economies remains weak.

Low wage pressure is due, inter alia, to: i) sluggish growth in labour productivity; ii) low inflation expectations; iii) still low labour utilisation in some

countries; iv) increase in labour participation in the groups with lower wages (women, elderly people); v) reduced workers’ wage-bargaining power and

higher preferences for the job security and benefit packages over the wage increase; vi) an increased importance of temporary or part-time jobs, vii) an

impact of structural reforms; viii) a declining number of hours worked.

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0 Economies characterised by lower unemployment rate than the average of 2000-2007

Factors explaining the deviations of wage growth from the average of 2000-2007

according to IMF research (WEO, 2017):

-4.0

-3.0

-2.0

-1.0

0.0

1.0

2000–07 2008–12 2013 2014 2015 2016

Economies characterised by markedly higher unemployment rate than the average of 2000-2007

Delayed inflation Trend in productivity growth Unemployment rate

Share of workers forced to work part-time The rest Wage dynamicsSource: OECD.


Labour market in G7 countries

Source: BIS, 87th Annual Report.

Labour share (% of GDP) Labour productivity and wages (1980=100)


Labour market in G7 countries

Source: BIS, 87th Annual Report.

Labour’s pricing power (%) Unemployment gap


Expected stabilization of oil prices

Source: Bloomberg.

WTI oil prices and number of drilling rigs in United States

Brent oil prices (USD/b)

Oil production in the United States (mln b/d)

25

30

35

40

45

50

55

60

01-16 04-16 07-16 10-16 01-17 04-17 07-17 10-17

daily monthly average quarterly average4

5

6

7

8

9

10

11

2010 2011 2012 2013 2014 2015 2016 2017 2018

oil production in the US EIA forecast Oct 2017

0

400

800

1200

1600

2000

2400

0

20

40

60

80

100

120

2010 2011 2012 2013 2014 2015 2016 2017 2018

WTI oil prices (4 months shifted)the number of active drilling rigs (RHS)

Source: The United States Department of Energy.

Outline:






- Investment demand

- Foreign trade

- Inflation

Uncertainty

17

Consumption demand


-8

-6

-4

-2

0

2

4

6

8

10

-8

-6

-4

-2

0

2

4

6

8

10

10q1 11q1 12q1 13q1 14q1 15q1 16q1 17q1 18q1 19q119q4

y/y, %

Public consumption (y/y, %)

Private consumption (y/y, %)

Private consumption:

Good labour market conditions.

Improvement in consumer sentiment.

In 2017 GDP growth supported by the “Family 500 Plus” programme.

Low interest rates facilitate financing consumption through borrowing.

Purchasing power of households reduced by rising inflation

Public consumption :

Relatively slow growth in current expenditures and in subsidies

financing current expenditure of other units of the sector (2017 Budget

Act and draft 2018 BA, incl. further wage freeze of part of the

government sector workers)

Lack of detailed information on the continuation of cutting public

expenditure in 2019.

Consumption demand as the main driver of GDP growth in the projection

y/y, % 2016 2017 2018 2019

Private consumption 3.8 4.7 3.7 3.5

Public consumption 2.8 2.4 2.4 3.4



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, %)Disposible 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

private 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 favourable consumer sentiment and very good labour market

conditions

Values from the July projection are given in brackets (seasonally adjusted).

Indicators with values higher than in the July projection are marked green,

whereas indicators with lower values are marked red.


Consumer confidence indicators

17q2 17q3

ULC (r/r, %) 2,7 (1,6) 3,1 (1,9)

Labour productivity (y/y,%) 1,9 (2,7) 2,2 (2,8)

Gross wages (y/y, %) 5,0 (4,3) 5,4 (4,8)

Employment LFS (y/y, %) 1,9 (1,2) 2,3 (1,3)

Unemployment rate LFS (%) 4,9 (5,1) 4,6 (5,0)

Participation rate (%) 56,7 (56,4) 56,7 (56,3)

Financial situation of households and risk of unemployment

-30

-20

-10

0

10

20

30

40

2014-01 2015-01 2016-01 2017-01

Current financial situation of housholdsFinancial situation of households in the next 12 monthsFear of being unemployed

-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.)



Increasing participation rates, but labour supply affected by changes in the demographic structure

54

54.5

55

55.5

56

56.5

57

-1

-0.5

0

0.5

1

1.5

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

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

5

10

15

20

25

30

35

40

10 11 12 13 14 15 16 17 18 19

84

85

86

87

88

0

5

10

15

20

25

30

35

10 11 12 13 14 15 16 17 18 19

62

64

66

68

70

72

74

76

0

5

10

15

20

25

30

10 11 12 13 14 15 16 17 18 19

0

2

4

6

8

10

12

Changes in population and participation rate



The lowest in the history probability of loosing job and transition from employment to inactivity

Recent increase of LFPR of people aged 50+ reflected in the

drop of the flows from employment to inactivity (E->N).

Companies retain 50+ employees.

Since 2013 higher intensity of transitions between inactivity (N)

and unemployment (U) due to activation of people loosely

attached to labour market. This positively influences labour

supply.

50

100

150

200

250

300

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

E->N U->N N->E N->U

Flows to and from inactivity (N)

(number of people in thous. per quarter)Probabilities of flows between employment (E)

and unemployment (U)

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

U->E (s.a., LHS) E->U (s.a., RHS)

The lowest in the history probability of loosing job

(E->U).

The highest in the LFS history (since 1992) probability of the

transition from unemployment to employment (U->E).



Biggest changes do not apply to retirement age, but 3-6 years

before retirement and are related to job retention of older

workers

Unitil the second quarter of 2017, despite the planned lowering

of retirement age, labour force participation is growing faster

than in the corresponding quarters of 2016 – lack of workers?

Growing labour force participation of people 45+ on the eve of lowering retirement age

Labour force participation and its changes Changes in labour force participation by distance to age 60/65

0

10

20

30

40

50

60

70

80

90

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

15-24 24-34 35-44 45-59/64 60/65+

QoQ change (LHS) YoY change (LHS) Level 2Q (RHS)

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

0.90

-0.08

-0.06

-0.04

-0.02

0.00

0.02

0.04

0.06

0.08

0.10

-10 -9 -8 -7 -6 -5 -4 -3 -2 -1 0 1 2 3 4 5

M (LHS) F (LHS)

Level M (RHS) Level F (RHS)

60/65

years old


Source: Labour force sourvey.

Labour force participation rates - Males Labour force participation rates - Females

Labour force participation of people at „prime-age” is close to the

EU average of 28.

Despite the reduction of early retirement in Poland, there is still a

problem of the relatively low activity of men aged 50+ in relation

to the EU28.

Successive generations are more and more active in the labour

market - there is a potential for increased labour force

participation.

Lower than average in the EU28 labour force participation of

women up to the age of 24 is associated with a high level of

academic enrollment, mainly in full-time studies.

Labour force participation of women aged 25-54 does not differ

significantly from the EU28 average.

Quite early retirement remains a problem due to retirement age

(60 years), although there is a potential for further growth in

labour force participation for people aged of 55-59.

Labour force participation in the pre-retirement age is still lower than in the EU28 average

0

10

20

30

40

50

60

70

80

90

100

15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69

LFPR, Male, Poland LFPR, Male, EU28

0

10

20

30

40

50

60

70

80

90

100

15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69

LFPR, Female, Poland LFPR, Female, EU28



■ According to GUS data, the number of retirees and pensioners in Q1-Q3

2017 was lower than in the projection of 2016, which did not take into

account lowering of retirement age. This is due to the good situation on the

labour market.

■ According to The Polish Social Insurance Institution (ZUS) estimates,

applications for retirement due to lowering the retirement age could

amount to about 330 thousand. people by the end of 2017. The NBP's

assessment is similar, but submitting the application does not mean that

the number of retirees will increase immediately. Therefore, estimates of

the increase in the number of pensioners are slightly lower and spread over

time because::

- submitting the application does not mean going for retirement

- to retire, employment contract need to be terminated,

- some people may need time to collect all the documents needed to

establish the initial capital.

■ In the current projection, the jump in the number of retirees due to lowering

the retirement age will be visible in the fourth quarter of 2017 and the first

quarter of 2018. Moreover, in the coming years people who are

approaching the age of 60/65 (who would have to wait longer for retirement

based on old regulations) will retire early.

■ Historically low unemployment can cause the labour force participation

of retired people to decline not as rapidly as it has been observed in the

past.

Without pension benefits With pension benefits

Labour force participation of people within the retirement age

Good labour market situation can spread over time the effects of lowering the retirement age

The number of retirees (thous.)

0

0.1

0.2

0.3

0.4

0.5

0.6

-1 0 1 2

Distance 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

8 800

8 900

9 000

9 100

9 200

9 300

9 400

9 500

9 600

2010Q1 2012Q1 2014Q1 2016Q1 2018Q1 2020Q1

2012 - before increase of the retirement age 2016 - last projection before reverse of the reform.

2017.07 2017.09


Source: The National Border Guard and Ministry of Family, Labour and Social Policy data, NBP calculations..

Total change in sectoral structure of immigrant jobs in 2014-

2016.

Most of the immigrants work in services, there is also a

significant increase in employment in the industry.

Permanent employment contracts are more and more

frequent in sectors with less „underground economy” than in

agriculture and construction.

Data for the first half of 2017 indicate that Poland issued over 108

thous. work permits for foreigners and registered 948 thous.

employer's declarations that form the basis for applying for a visa.

In 2017, the number of immigrant workers in Poland may be 60%

higher than in the previous year.

These estimates is confirmed by the growing number of border

crossings between Poland and Ukraine

Immigration from Ukraine

Number of immigrants on the Polish labour market

(mostly from Ukraine)

Structure of employer's declarations by sector

2000

3000

4000

5000

6000

7000

0

500

1000

1500

2000

2500

2010 2011 2012 2013 2014 2015 2016 2017

Th

ous.

Th

ous.

Work permits

Declarations of the intention to entrust a job to a foreigner

Visas issued on the basis of declaration

Arrivals of Ukrainians to Poland (excl. LBT) - rhs

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2008 2009 2010 2011 2012 2013 2014 2015 2016 I poł.2017

Agriculture Industry Construction Services



The scale of migration flows of Ukrainian citizens to

Germany seems to be low compared to Poland.

Long- and medium-term immigrants dominate in the

structure of Ukrainian migration to Germany.

Since June 2017 Ukrainians are exempted from EU

short-stay visa requirements.

Although visa liberalisation doesn’t mean opening of the

EU labour market. Regarding the legalization of

employment regulations have not changed.

The recent liberalization of EU visa policy towards Ukraine does not result in significant outflow of

immigrants from Poland

UA citizens in Germany by length of stay (level) UA citizens in Germany by length of stay (YoY change)

0

20

40

60

80

100

120

140

160

Th

ous.

<1Y 1-4Y 4-10Y >=10Y

-15

-10

-5

0

5

10

15

20

Th

ous.

<1Y 1-4Y 4-10Y >=10Y Total YoY change


Source: GUS data, NBP calculations , Quick Monitoring NBP, F-01/I-01 GUS.

Despite favourable labour demand conditions …

Employment forecasts

Employment forecasts by company size

Employment in the corporate sector

-20

-10

0

10

20

30

40

2012 2013 2014 2015 2016 2017

SMEs (s.a.) only up to 49 persons (s.a.)Large enterprises (s.a.) only over 2000 persons (s.a.)

-30

-25

-20

-15

-10

-5

0

5

10

15

20

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

balance empl. ind.empl. ind. (s.a.) long-term average

Increase of employment by sector of economy

-4%

-2%

0%

2%

4%

6%

5 200

5 400

5 600

5 800

6 000

6 200

2009-09 2010-09 2011-09 2012-09 2013-09 2014-09 2015-09 2016-09 2017-09

y/y (LHS) s.a. (RHS)

70

80

90

100

110

120

2007 I 2008 I 2009 I 2010 I 2011 I 2012 I 2013 I 2014 I 2015 I 2016 I 2017 I

Services (National Economy) Services (LFS)Agriculture (National Economy) Agriculture (LFS)Industry (National Economy) Industry (LFS)


... limited labour supply will lead to a slowdown in

employment growth

Unemployment rate

Change of labour force, thous. y/y

0%

5%

10%

15%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

LFS unemployment rate (s.a.) Registered unemployment rate (s.a.)

5,1 %

7,2%

Vacancies and difficulties with hiring employees

(percentage of enterprises)

%

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

0

10

20

30

40

50

2006Q4 2007Q4 2008Q4 2016Q3 2017Q1 2017Q2 2017

vacancies difficulties with hiring employees


Higher wage dynamics

Wage increases forecasts

Wage pressure (percentage of firms)

Source: Quick Monitoring NBP, NBP calculations.

Increase in wage pressure and faster wage growth than labour

productivity (percentage of firms)

-2

0

2

4

6

8

-2

0

2

4

6

8

10q1 11q1 12q1 13q1 14q1 15q1 16q1 17q1 18q1 19q1 19q4

Nominal wages (y/y) (%)

Real wages (y/y) (%)

4

6

8

10

12

14

16

18

20

40

44

48

52

56

60

64

68

2012 2013 2014 2015 2016 2017firms with no change or increasing wage pressureonly firms with increasing wage pressure (RHS)

0

5

10

15

20

25

30

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

firms with wage growth higher than productivity growthfirms with increasing wage pressure

0

10

20

30

40

50

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017share of enterprises s.a.

share of employees s.a.

Outline:






- Investment demand

- Foreign trade

- Inflation

Uncertainty

31

Investment demand


Private investment:

Increasing use of funds from 2014-2020 EU financial perspective

Improving forecasts of demand, orders and production

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.

Increase in investment since 2017

y/y, % 2016 2017 2018 2019

Gross fixed capital formation -7.9 5.8 7.6 5.0

-12

-10

-8

-6

-4

-2

0

2

4

6

8

10

12

14

-12

-10

-8

-6

-4

-2

0

2

4

6

8

10

12

14

10q1 11q1 12q1 13q1 14q1 15q1 16q1 17q1 18q1 19q119q4

GFCF enterprises GFCF public sector

GFCF housing GFCF



Current data support the scenario of acceleration of public investment in 2017, though at a rate lower

than assumed in the previous round

Source: Ministry of Finance data, Eurostat, The National Road Fund, own calculations.

Total public investment growth,% YoY Investment expenditures of local government units,% YoY

Slower pace of growth in public investment in 2017 caused by low level of road investment in Q1-Q3 and lower than expected level of military

equipment delivery in 2017

-25

-20

-15

-10

-5

0

5

10

15

20

25

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

%, y/y

Jul assumptions realization Nov asumptions

-60

-40

-20

0

20

40

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

1Q

2Q

2013 2014 2015 2016 2017

%, y/y


The high level of signed contracts for the use of EU funds supports the high growth of EU funds

absorption over the projection horizon

Source: GUS, Ministry of Finance data, own calculations.

Value of signed contracts for projects financed

from Cohesion Policy funds, cumulative % of

allocation

Payment requests from beneficiaries – PLN

billion

Slower rate of EU funds absorption from 2014-2020 perspective compared to the previous one indicates a lower utilization of EU funds in 2017.

The use of EU funds (without

CAP and RDP)

0.00

5.00

10.00

15.00

20.00

25.00

30.00

35.00

07-13

14-20

07-13

14-20

07-13

14-20

2008/2015 2009/2016 2010/2017

bill

ion P

LN

I-IX X-XII

0

10

20

30

40

50

III VI IX XII III VI IX XII III VI IX

II year III year IV year

cum

. %

of allo

catio

n

07-13 14-20

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

% G

DP

Jul assumptions realization Nov asumptions


Overall investor optimism ratings (standardized index)

Source: Quick Monitoring NBP.

Survey among enterprises point to low demand barriers, growing optimism, …

Quarterly forecasts of demand, output and orders (s.a.)Demand-side barriers

5

10

15

20

2010 2011 2012 2013 2014 2015 2016 2017

-15

-10

-5

0

5

10

15

20

25

2012 2013 2014 2015 2016 2017

permanent demand component demand new orders output

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

2012 2013 2014 2015 2016 2017

QM - OPTIN - private F01 - investment y/y - private

-3.0

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2012 2013 2014 2015 2016 2017QM - OPTIN - public F01 - investment y/y - public


Source: GUS data.

… further economic recovery and improvement in the forecasts of orders

Construction - general economic climate indicatorIndustry - general economic climate indicator

-12

-10

-8

-6

-4

-2

0

2

4

6

8

2012 2013 2014 2015 2016 2017-30

-25

-20

-15

-10

-5

0

5

2012 2013 2014 2015 2016 2017

Construction - a portfolio of domestic ordersIndustry - a portfolio of domestic and foreign orders

-20

-15

-10

-5

0

5

10

2012 2013 2014 2015 2016 2017-25

-20

-15

-10

-5

0

5

2012 2013 2014 2015 2016 2017


… and high capacity utilisation in the economy

Capacity utilisation

Source: Quick Monitoring NBP, GUS data.

Uncertainty assessment

72

74

76

78

80

82

84

2012 2013 2014 2015 2016 2017

QM NBP (s.a.) GUS (industry)

Źródło: Szybki Monitoring NBP.

2

3

4

5

6

7

8

9

-26

-23

-20

-17

-14

-11

-8

2012 2013 2014 2015 2016 2017

Own uncertainty (LHS) Own uncertainty s.a. (LHS)

barrier - uncertainty (RHS)


Companies plan to increase investment expenditure

Planned changes in investment outlays

Source: Quick Monitoring NBP, GUS data.

-30

-20

-10

0

10

20

30

-15

-10

-5

0

5

10

15

2012 2013 2014 2015 2016 2017

investment dynamics F01 (RHS) quarterly plans

annual plans until 2017 quarterly plans BLC

annual plans BLC

New investment index among sectors

15

20

25

30

35

40

2012 2013 2014 2015 2016 2017

private public

average 2009 private average 2009 public

average 2004 private average 2004 public

Share of companies planning new investments in the next quarter horizon.Planned change of investment in the quarter-on-quarter and in the current year-on-

year. Balance of change, balance of large changes BLC (increase-decrease).

Outline:






- Investment demand

- Foreign trade

- Inflation

Uncertainty

39

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 will limit GDP growth

Exports:

High profitability of exporters (high price profitability)

Expected slowdown in the euro area growth.

Appreciation of the zloty exchange rate.

Imports:

In 2017 acceleration of consumption and investment

dynamics.

Lower growth of inventories in the second half of 2017.

From 2018 slower domestic demand growth.

y/y pp. 2016 2017 2018 2019

Net exports

contribution0.3 -0.4 -0.5 -0.1


Changes in Polish exports

Source: CPB data, Eurostat, Quick Monitoring NBP.

Changes in Polish exports by groups of countries (%, y/y,

current prices, s.a.)Changes in the volume of exports in the Visegrad

Group (% y/y - national accounts)

Export changes of the Polish automotive industry

(% y/ y, current prices)

Dynamics of Polish exports - national accounts (% y/y)

Changes in Polish exports according to Balance of

Payments statistics (% y/y, current prices)

-12

-8

-4

0

4

8

12

16

I II III IV I II III IV I II III IV I II

2014 2015 2016 2017

price changes in EUR volume changes value changes in EUR

-3

0

3

6

9

12

15

I II III IV I II III IV I II

2015 2016 2017

Poland Czech RepublicSlovakia Hungary

-3

0

3

6

9

12

15

18

I II III IV I II III IV I II

2015 2016 2017

parts used vehicules cars total

0

4

8

12

16

20

Euro area UnitedKingdom

VisegradGroup

non-EUcountries

1Q 2017 2Q 2017

0

3

6

9

12

15

I II III IV I II III IV I II III*

2015 2016 2017

goods services export

* data include July and August


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

Gradual appreciation of the zloty Positive current and capital account balance over the

projection horizon


-6.00

-4.00

-2.00

0.00

2.00

4.00

6.00

-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

43

Inflation


At the turn of 2017/2018 lower CPI inflation due to the base effect

Values from the July projection are given in brackets (seasonally adjusted).

Indicators with values higher than in the July projection are marked green, whereas indicators with lower values are marked red


Base effect – the influence on CPI

y/y, % 17q2 17q3

CPI inflation 1.8 (1.9) 1.9 (2.1)

Core inflation 0.8 (0.8) 0.8 (1.2)

Food prices

inflation3.4 (3.7) 4.6 (4.2)

Energy prices

inflation3.1 (3.4) 1.9 (2.1)

0

2

4

6

8

10

12

-0,2

-0,1

-0,1

0,0

0,1

0,1

0,2

2012 2013 2014 2015 2016 2017 2018

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 ,

Over 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 (however, 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 2.3 2.7-2

-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 the years 2018-2019 the output gap will not exceed 1% of 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, %)


-1

0

1

2

3

4

5

6

-1

0

1

2

3

4

5

6

TFP Capital

NAWRU Economically active pop.

Potential output


The impact of rising cost pressure in domestic market limited by the moderate growth in 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

Wages (y/y, %) Labour productivity (y/y, %) ULC (r/r, %)


Energy commodity prices after a hike in the short term will gradually decrease

The index of agricultural commodity prices will stand at a low, but gradually increasing 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 (y/y) (%)

Food prices inflation (y/y) (%)

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)

VII/17

Index of agricultural commodity prices (EUR, 2011=100)

VII/17

Outline:






- Investment demand

- Foreign trade

- Inflation

Uncertainty

49

Uncertainty

Risk factors

Fan charts


Risk area Description Impact

Scale

of

impact

Deterioration

of global growth

outlook

Decline in the US economy (household and corporate sentiment deterioration as a result of a smaller

scope of reforms or a delay in their implementation, stock market correction).

Sentiment deterioration and stronger economic slowdown in the euro area (stability of the financial

system, uncertainty concerning Brexit agreement, disintegration tendencies, elections in Italy).

Escalation of tensions on the Korean Peninsula.

Inflation

GDP **

Improvement in

global economic

conditions

Higher economic growth in US (positive effect of fiscal stimulus and stronger improvement in

household and corporate sentiment increasing faster growth of consumption and investment

expenditure, increase in infrastructure expenditure).

Higher economic growth in the euro area (higher dynamics of investment, stronger improvement in

competitiveness due to structural reforms implemented in some of the member countries).

Inflation

GDP **

Changes in labour

supply

Impact of lowering of retirement age on the labour participation rate – uncertain numer of people

going into inactivity, depending on the labour market situation.

Return migration of Poles.

Scale of migration of Ukrainian citizens to Poland (incl. impact of the introduction of a visa-free regime

in EU for Ukrainian citizens).

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,

- impact of the disturbance in Iraq's oil production due to the increase tensions after the independence

referendum in Kurdistan.

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 4.2 3.8 4.6

2018 3.6 2.8 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 0% 100% 100% 50% 100%

2018 22% 59% 89% 49% 67%

2019 21% 45% 70% 49% 49%

CPI

y/y, %

central

path

50% probability

interval

2017 1.9 1.9 2.0

2018 2.3 1.6 2.9

2019 2.7 1.7 3.7

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

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