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Page 1: Inflation and economic growth projection of Narodowy Bank ... · Inflation and economic growth projection of the NBP 13 Downside risk to gentle downward trajectory of GDP growth in

Economic Analysis Department

Warsaw / 8 July 2019

Inflation and economic growth projection

of Narodowy Bank Polski

based on the NECMOD model

Page 2: Inflation and economic growth projection of Narodowy Bank ... · Inflation and economic growth projection of the NBP 13 Downside risk to gentle downward trajectory of GDP growth in

Outline:

Inflation and economic growth projection of the NBP

Changes between rounds

Projection 2019 – 2021

▪ Economic condtions

abroad

▪ Polish economy

▪ GDP

- Consumption demand

- Investment demand

- Foreign trade

▪ Inflation

Uncertainty

2

1 Changes between projection rounds

2 Projection 2019 – 2021

3 Uncertainty

Outline

Page 3: Inflation and economic growth projection of Narodowy Bank ... · Inflation and economic growth projection of the NBP 13 Downside risk to gentle downward trajectory of GDP growth in

Outline:

Inflation and economic growth projection of the NBP

Changes between rounds

Projection 2019 – 2021

▪ Economic condtions

abroad

▪ Polish economy

▪ GDP

- Consumption demand

- Investment demand

- Foreign trade

▪ Inflation

Uncertainty

3

Changes between projection rounds

Page 4: Inflation and economic growth projection of Narodowy Bank ... · Inflation and economic growth projection of the NBP 13 Downside risk to gentle downward trajectory of GDP growth in

Inflation and economic growth projection of the NBP 4

July projection compared to March projection – main changes

Impact on GDP Impact on CPI

Weaker outlook for global growth and trade

Higher resilience of the Polish economy to a slowdown abroad

Higher private investment growth

Stronger złoty appreciation

Higher prices of meat and cold meats in 2019-2020 as a result of the ASF epidemic

in China

Higher vegetables prices due to underestimation of the effects of last year’s

drought and losses in storage

Higher wage growth in the public sector in 2020

Page 5: Inflation and economic growth projection of Narodowy Bank ... · Inflation and economic growth projection of the NBP 13 Downside risk to gentle downward trajectory of GDP growth in

Inflation and economic growth projection of the NBP 5

July GDP projection compared to March projection

Source: GUS data, NBP calculations.

pp.

-1

0

1

2

3

4

5

6

7

8

-1

0

1

2

3

4

5

6

7

8

16q1 17q1 18q1 19q1 20q1 21q1 21q4

y/y, %

90% 60% 30% Mar 19 Jul 19

-0.4

-0.2

0.0

0.2

0.4

0.6

-0.4

-0.2

0.0

0.2

0.4

0.6

2019 2020 2021

Private consumption Public consumptionGross capital formation Net exportsGDP

GDP y/y, % 2019 2020 2021

March 2019 4.0 3.7 3.5

July 2019 4.5 4.0 3.5

Page 6: Inflation and economic growth projection of Narodowy Bank ... · Inflation and economic growth projection of the NBP 13 Downside risk to gentle downward trajectory of GDP growth in

Inflation and economic growth projection of the NBP 6

July CPI projection compared to March projection

Source: GUS data, NBP calculations.

pp.

-2

-1

0

1

2

3

4

5

6

-2

-1

0

1

2

3

4

5

6

16q1 17q1 18q1 19q1 20q1 21q1 21q4

90% 60% 30% Mar 19 Jul 19 inflation target

y/y,%

CPI y/y, % 2019 2020 2021

March 2019 1.7 2.7 2.5

July 2019 2.0 2.9 2.6

-0.2

-0.1

0.0

0.1

0.2

0.3

0.4

0.5

2019 2020 2021

-0.2

-0.1

0.0

0.1

0.2

0.3

0.4

0.5

Core inflation Food prices

Energy prices CPI inflation

Page 7: Inflation and economic growth projection of Narodowy Bank ... · Inflation and economic growth projection of the NBP 13 Downside risk to gentle downward trajectory of GDP growth in

Outline:

Inflation and economic growth projection of the NBP

Changes between rounds

Projection 2019 – 2021

▪ Economic condtions

abroad

▪ Polish economy

▪ GDP

- Consumption demand

- Investment demand

- Foreign trade

▪ Inflation

Uncertainty

7

Projection 2019-2021

▪ Economic conditions abroad

▪ Polish economy

Page 8: Inflation and economic growth projection of Narodowy Bank ... · Inflation and economic growth projection of the NBP 13 Downside risk to gentle downward trajectory of GDP growth in

Outline:

Inflation and economic growth projection of the NBP

Changes between rounds

Projection 2019 – 2021

▪ Economic condtions

abroad

▪ Polish economy

▪ GDP

- Consumption demand

- Investment demand

- Foreign trade

▪ Inflation

Uncertainty

8

Economic conditions abroad

Page 9: Inflation and economic growth projection of Narodowy Bank ... · Inflation and economic growth projection of the NBP 13 Downside risk to gentle downward trajectory of GDP growth in

Inflation and economic growth projection of the NBP 9

Despite stronger 19Q1, forecast for GDP growth outside Poland was revised downward

NBP forecasts

(March 2019 projection in brackets)

PMI Global (p.)

Import growth (%, y/y)

GDP y/y, % 2019 2020 2021

Euro area 1.2 (1.2) 1.4 (1.5) 1.4 (1.4)

Germany 0.7 (0.9) 1.2 (1.4) 1.4 (1.4)

US 2.5 (2.5) 1.8 (2.0) 1.8 (1.8)

China 6.3 (6.1) 6.0 (6.0) 5.9 (-)

19Q1 GDP growth forecast vs actual (%, q/q)

Source: Markit Economics, CPB Netherlands, EAD calculations

-2

0

2

4

6

2017 2018 2019

United States Japan Euro area

Asian emerging markets Other economies Global economy

48

49

50

51

52

53

54

55

56

2017 2018 2019

PMI composite PMI manufacturing PMI services

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

United States Euro Area Germany United Kingdom

forecast (March 2019 projection) actual

Page 10: Inflation and economic growth projection of Narodowy Bank ... · Inflation and economic growth projection of the NBP 13 Downside risk to gentle downward trajectory of GDP growth in

Inflation and economic growth projection of the NBP 10

Unfavourable signals from foreign demand contributed to a lower GDP growth forecast

for the euro area

Source: Eurostat, European Commission, Markit Economics, EAD calculations.

Forecast for GDP growth in the euro area (%, pp., y/y) Exports from the euro area by destination (%, y/y, 3-month moving average)

45

50

55

60

65

2017 2018 2019

Manufacturing Services Construction

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

2015 2016 2017 2018 2019p 2020p 2021p

Private consumption Public consumption Investment

Change in inventories Net exports GDP

-4

-2

0

2

4

6

8

10

12

14

2017 2018 2019US ChinaOther emerging markets Other advanced economiesOther Exports from EA

-15

-10

-5

0

5

10

15

2017 2018 2019

Euro area Germany

Assessment of export orders (3-month moving average) Business confidence (PMI, p.)

Page 11: Inflation and economic growth projection of Narodowy Bank ... · Inflation and economic growth projection of the NBP 13 Downside risk to gentle downward trajectory of GDP growth in

Inflation and economic growth projection of the NBP 11

Growth in the euro area is supported by domestic demand

Gross disposable income per capita and its decomposition

(% and pp., q/q)

Consumer confidence in the euro area (CCI, p.)

-0.5

0.0

0.5

1.0

1.5

2014 2015 2016 2017 2018

Wages Other income Taxes Gross disposable income

-25

-20

-15

-10

-5

0

5

2017 2018 2019

Euro area Germany France Spain Italy

Source: Eurostat, European Commission, EAD calculations.

-0.5

0.0

0.5

1.0

1.5

2.0

2014 2015 2016 2017 2018 2019

Agriculture Industry Construction Services Economy

Employment in the euro area (%, y/y and pp.)

General government structural balance, excluding interest income and

payments (% potential GDP)

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

2017 2018 2019 2020

Euro area Germany Spain France Italy

Page 12: Inflation and economic growth projection of Narodowy Bank ... · Inflation and economic growth projection of the NBP 13 Downside risk to gentle downward trajectory of GDP growth in

Inflation and economic growth projection of the NBP 12

Growth in the United States will gradually slow down

20

25

30

35

40

45

50

55

60

65

70

75

-30

-25

-20

-15

-10

-5

0

5

10

15

20

25

2000 2003 2006 2009 2012 2015 2018

Business investment

Real business investment (% q/q SAAR, LHS) ISM Manufacturing (p., RHS)

10

15

20

25

30

35

40

45

50

75

80

85

90

95

100

105

110

115

2007 2009 2011 2013 2015 2017 2019

Confidence and firms’ investment plans

Business confidence (p., LHS) Investment plans (%, RHS)

-5

-4

-3

-2

-1

0

1

2

3

4

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

P

20

20

P

20

21

P

%

Real GDP growth

Private consumption Private investment Change in inventories

Net exports Public consumption GDP

Source: BEA, ISM, NFIB, FRB, Economic Policy Uncertainty, NBER, EAD calculations.

-6

-5

-4

-3

-2

-1

0

1

2

3

1.2

1.5

1.8

2.1

2.4

2.7

3.0

3.3

3.6

3.9

2007 2009 2011 2013 2015 2017 2019

Nominal wages and employment

Average hourly wage (%, y/y, LHS) Non-farm payroll employment (%, y/y, RHS)

Page 13: Inflation and economic growth projection of Narodowy Bank ... · Inflation and economic growth projection of the NBP 13 Downside risk to gentle downward trajectory of GDP growth in

Inflation and economic growth projection of the NBP 13

Downside risk to gentle downward trajectory of GDP growth in China due to trade dispute with the US

GDP growth in China (%, y/y)Industrial production and retail sales

(%, y/y, 3-month moving average)

Exports from China to selected countries (%, y/y, 3-month moving average)Selected subindices of PMI NBS

in manufacturing (p.)

5.5

6.0

6.5

7.0

7.5

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

2015 2016 2017 2018 2019 2020

actual Bloomberg

4

5

6

7

8

9

10

11

2016 2017 2018 2019

Industrial production Retail sales

45

46

47

48

49

50

51

52

53

54

55

2016 2017 2018 2019New export orders Imports

New domestic orders Production

-20

-10

0

10

20

30

2016 2017 2018 2019

EU US ASEAN Japan

Source: Datastream, Markit Economics, EAD calculations.

Page 14: Inflation and economic growth projection of Narodowy Bank ... · Inflation and economic growth projection of the NBP 13 Downside risk to gentle downward trajectory of GDP growth in

Outline:

Inflation and economic growth projection of the NBP

Changes between rounds

Projection 2019 – 2021

▪ Economic condtions

abroad

▪ Polish economy

▪ GDP

- Consumption demand

- Investment demand

- Foreign trade

▪ Inflation

Uncertainty

14

Polish economy

Gross domestic product

Page 15: Inflation and economic growth projection of Narodowy Bank ... · Inflation and economic growth projection of the NBP 13 Downside risk to gentle downward trajectory of GDP growth in

Inflation and economic growth projection of the NBP 15

Still high economic growth in 19Q1

18q4 19q1

GDP (y/y) (%) 4.9 (4.9) 4.7 (4.2)

Domestic demand (y/y) (%) 4.8 (4.3) 4.2 (4.0)

Household consumption (y/y) (%) 4.2 (4.2) 3.9 (4.1)

Public consumption (y/y) (%) 4.7 (4.6) 6.4 (4.4)

Gross fixed capital form. (y/y) (%) 8.2 (6.9) 12.6 (5.9)

Exports (y/y) (%) 7.9 (7.2) 5.9 (5.3)

Imports (y/y) (%) 7.8 (6.1) 5.0 (4.9)

Net exports contribution (pp.) 0.3 (0.7) 0.7 (0.3)

Values from the March projection are given in brackets (19q1 seasonally adjusted). Indicators with values

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

Source: GUS data, NBP calculations.

-8

-4

0

4

8

12

-8

-4

0

4

8

12

09q1 10q1 11q1 12q1 13q1 14q1 15q1 16q1 17q1 18q1 19q1

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

Real wage fund in corporate sector y/y GDP y/y

38

42

46

50

54

58

-30

-20

-10

0

10

20

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

PMI Poland and business sentiment (GUS) – general expected economic conditions (s.a.)

industry construction trade PMI Poland (RHS)

Page 16: Inflation and economic growth projection of Narodowy Bank ... · Inflation and economic growth projection of the NBP 13 Downside risk to gentle downward trajectory of GDP growth in

Inflation and economic growth projection of the NBP 16

-3

-2

-1

0

1

2

3

4

5

6

7

-3

-2

-1

0

1

2

3

4

5

6

7

18q1 19q1 20q1 21q1 21q4

Consumption Gross fixed capital formation

Change in inventories Net exports

GDP

… GDP growth will gradually moderate due to an ongoing lower economic activity in the euro area

and a slowdown in EU funds absorption growth.

Private consumption as the main driver of GDP growth in

projection horizon.

Significant acceleration of private investment in 2019 –

high growth rate of business investment, accompanied by

still relatively strong demand for housing.

Weakening of gross fixed capital formation growth in

2020-2021.

Slightly negative net exports’ contribution over the

projection horizon.

y/y, % 2018 2019 2020 2021

GDP 5.1 4.5 4.0 3.5

Source: GUS data, NBP calculations.

Page 17: Inflation and economic growth projection of Narodowy Bank ... · Inflation and economic growth projection of the NBP 13 Downside risk to gentle downward trajectory of GDP growth in

Outline:

Inflation and economic growth projection of the NBP

Changes between rounds

Projection 2019 – 2021

▪ Economic condtions

abroad

▪ Polish economy

▪ GDP

- Consumption demand

- Investment demand

- Foreign trade

▪ Inflation

Uncertainty

17

Consumption demand

Page 18: Inflation and economic growth projection of Narodowy Bank ... · Inflation and economic growth projection of the NBP 13 Downside risk to gentle downward trajectory of GDP growth in

Inflation and economic growth projection of the NBP 18

Private consumption:

Spread-out impact of already introduced or planned fiscal changes significantly

increasing expenditures on social benefits and lowering tax burden.

Favourable, from the point of view of employees, labour market conditions.

Low interest rates facilitate financing consumption through borrowing.

In the longer term:

Weakening of wage growth in 2020-2021.

Gradual fading-out of the fiscal stimulus in 2021.

Public consumption:

2019 Budget Act – increase in wages in the budget sector and selected

professional groups (i.a. teachers, academic teachers and employees of

uniformed services).

Approved by the government, an average annual increase in wages in the

budget sector of 6% in 2020.

Lack of detailed information on the public consumption expenditure in 2021.

Consumptiom demand remains the main driver of GDP growth over the projection horizon

y/y, % 2018 2019 2020 2021

Household consumption 4.5 4.4 4.4 3.8

Public consumption 4.7 5.4 4.4 3.4

Source: GUS data, NBP calculations.

-8

-4

0

4

8

12

-8

-4

0

4

8

12

12q1 13q1 14q1 15q1 16q1 17q1 18q1 19q1 20q1 21q1 21q4

Household consumption (y/y, %)

Public consumption (y/y, %)

Consumer confidence indicators

Consumption forecast

-50

-40

-30

-20

-10

0

10

20

2008 2010 2012 2014 2016 2018

current (BWUK) leading (WWUK)

Page 19: Inflation and economic growth projection of Narodowy Bank ... · Inflation and economic growth projection of the NBP 13 Downside risk to gentle downward trajectory of GDP growth in

Inflation and economic growth projection of the NBP 19

Very good financial situation of households. Gradual decline in disposable income growth in 2020-2021.

Values from the March projection are given in brackets (seasonally adjusted). Indicators with values higher

than in the March projection are marked green, whereas indicators with lower values are marked red.

Source: GUS data, NBP calculations.

18q4 19q1

ULC (y/y, %) 2.8 (3.3) 1.9 (3.5)

Labour productivity (y/y,%) 4.9 (3.9) 5.2 (3.6)

Gross wages (y/y, %) 7.7 (7.3) 7.1 (7.3)

Employment LFS (y/y, %) 0.0 (0.9) -0.4 (0.6)

Unemployment rate LFS (%) 3.8 (3.6) 3.8 (3.5)

Participation rate (%) 56.2 (56.4) 56.3 (56.6)

Financial situation of households and fear of being unemployed

-4

-2

0

2

4

6

8

-4

-2

0

2

4

6

8

18q1 19q1 20q1 21q1 21q4

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, %)

-40

-20

0

20

40

60

80

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Current financial situation of householdFinancial situation of household in the next 12 monthsFear of being unemployed

Page 20: Inflation and economic growth projection of Narodowy Bank ... · Inflation and economic growth projection of the NBP 13 Downside risk to gentle downward trajectory of GDP growth in

Inflation and economic growth projection of the NBP 20

Source: GUS data, NBP calculations.

Unemployment rate remains low – currently also due to negative demographic factors

Registered and LFS unemployment rate (%)

10.4%

7.0%

LFS unemplyment rate 3.8%

Registered unemployment

rate

5.4%

0%

5%

10%

15%

20%

25%

1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017

Unemployment rate changes – decomposition (y/y, p.p., LFS data)

-300

-200

-100

0

100

200

300

400

500

-300

-200

-100

0

100

200

300

400

500

18q1 19q1 20q1 21q1 21q4

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

Changes in labour force, thous. y/y

53

54

55

56

57

96

98

100

102

104

106

108

05q1 06q1 07q1 08q1 09q1 10q1 11q1 12q1 13q1 14q1 15q1 16q1 17q1 18q1 19q1 20q1 21q121q4

LFS population (2005q1=100%)

Economically active (s.a., 2005q1=100%)

Participation rate (s.a., RHS)

-6

-5

-4

-3

-2

-1

0

1

2

3

2007 2009 2011 2013 2015 2017 2019

Change in participation rate

Change in employment

Change in population

Change in unemployment rate (y/y, pp)

Page 21: Inflation and economic growth projection of Narodowy Bank ... · Inflation and economic growth projection of the NBP 13 Downside risk to gentle downward trajectory of GDP growth in

Inflation and economic growth projection of the NBP 21

Source: GUS data, NBP calculations.

Supply constraints translate into lower employment growth

Employment in the corporate sector LFS employment by sectors (s.a., y/y, %)

-2%

-1%

0%

1%

2%

3%

4%

5%

5,000

5,200

5,400

5,600

5,800

6,000

6,200

6,400

2012 2013 2014 2015 2016 2017 2018 2019

y/y, LHS s.a., RHS

-4.5%

-0.7%

1.0%

-9%

-6%

-3%

0%

3%

6%

9%

12%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Agriculture Industry and construction Services

39.0

39.5

40.0

40.5

41.0

41.5

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Temporary work contract, ppPermanent work contract, ppEmployees, % y/y, s.a.Weekly number of hours worked, s.a., RHS

Employees by type of contract and number of hours worked (LFS)

-2%

0%

2%

4%

6%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Employees, ppSelf-employed in agriculture, ppSelf-employed excl. agriculture, ppContributing family workers, ppTotal employment, % y/y, s.a.

Employed persons by employment status (% and pp, y/y)

Page 22: Inflation and economic growth projection of Narodowy Bank ... · Inflation and economic growth projection of the NBP 13 Downside risk to gentle downward trajectory of GDP growth in

Inflation and economic growth projection of the NBP 22

Source: GUS data, NBP Quick Monitoring, NBP Annual Survey, NBP calculations.

Labour demand stabilised at a high level

Vacancies

Share of companies reporting difficulties with finding new

employees as a barrier for expansion

54

55

56

57

-2

-1

0

1

2

3

4

12q1 13q1 14q1 15q1 16q1 17q1 18q1 19q1 20q1 21q1 21q4

Employment (y/y, %) Participation rate (%, RHS)

Employment forecast indicator (NBP Annual Survey) and net balance of

companies increasing and decreasing employment (GUS) [in pp.]

Employment and participation rate forecast

0%

2%

4%

6%

8%

10%

12%

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

70

80

90

100

110

120

130

140

150

20 000

40 000

60 000

80 000

100 000

120 000

140 000

160 000

180 000

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Number of vacancies within a month, s.a., LHS

Number of non-subsidized vacancies within a month, s.a., LHS

Inverse of labour market indicator, RHS

-30

-20

-10

0

10

20

30

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

GUS employment indicator, s.a.

Page 23: Inflation and economic growth projection of Narodowy Bank ... · Inflation and economic growth projection of the NBP 13 Downside risk to gentle downward trajectory of GDP growth in

Inflation and economic growth projection of the NBP 23

Wage growth will decline over the projection horizon

Nominal wages

(% y/y, s.a., last data point 18Q4)

Source: GUS, NBP Quick Monitoring, MoF, NBP calculations.

Increase in wage pressure and wage growth exceeding labour productivity

(share of enterprises) Wage growth forecast (y/y, %)

-2

0

2

4

6

8

-2

0

2

4

6

8

12q1 13q1 14q1 15q1 16q1 17q1 18q1 19q1 20q1 21q1 21q4

Nominal wages (y/y, %) Real wages (y/y, %)

Wage fund* in the public sector (current prices, y/y, w %)

* Wage fund including social insurance contributions paid by employer

0

4

8

12

16

20

24

28

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

firms with wage growth faster than productivity growth

firms with increasing wage pressure

0

1

2

3

4

5

6

7

8

0

1

2

3

4

5

6

7

8

9

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

6.3%

7.3%

0%

2%

4%

6%

8%

10%

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

public sector private sector

Page 24: Inflation and economic growth projection of Narodowy Bank ... · Inflation and economic growth projection of the NBP 13 Downside risk to gentle downward trajectory of GDP growth in

Outline:

Inflation and economic growth projection of the NBP

Changes between rounds

Projection 2019 – 2021

▪ Economic condtions

abroad

▪ Polish economy

▪ GDP

- Consumption demand

- Investment demand

- Foreign trade

▪ Inflation

Uncertainty

24

Investment demand

Page 25: Inflation and economic growth projection of Narodowy Bank ... · Inflation and economic growth projection of the NBP 13 Downside risk to gentle downward trajectory of GDP growth in

Inflation and economic growth projection of the NBP 25

Public investment:

Still positive, but lower than last year, growth in EU funds absorption in

2019.

Decrease in EU funds absorption in 2020-2021.

Private investment:

Currently favorable demand conditions.

High level of capacity utilisation, accompanied by a low investment rate.

Low interest rates.

Good financial situation of households.

Difficulties with finding employees.

Delayed effects of a slowdown in foreign demand growth.

Decreasing contribution of EU funds absorption for the private sector.

Gradual reduction in housing expenditure growth.

Marked acceleration of private investment in 2019, accompanied by lower public investment growth

y/y, % 2018 2019 2020 2021

Gross fixed capital formation 8.7 8.6 4.8 2.6

Source: GUS data, NBP calculations.

-2

0

2

4

6

8

10

12

14

-2

0

2

4

6

8

10

12

14

18q1 19q1 20q1 21q1 21q4

Public sectorPrivate sectorGross fixed capital formation (y/y, %)

Page 26: Inflation and economic growth projection of Narodowy Bank ... · Inflation and economic growth projection of the NBP 13 Downside risk to gentle downward trajectory of GDP growth in

Inflation and economic growth projection of the NBP 26

Public investments growth, including those financed with EU funds, will decline,

mainly due to local governments

Investment expenditures of local governments (y/y, %, current prices) Contributions to public investment growth (% y/y , current prices)

Public investment expenditures (bn PLN, current prices) Absorption of EU funds for public investment, % GDP

Source: GUS, Eurostat, MF, MIiR, NBP calculations. F – EAD forecast

-60

-40

-20

0

20

40

60

80

100

08q1 09q1 10q1 11q1 12q1 13q1 14q1 15q1 16q1 17q1 18q1 19q1

Election year

Post-election year

0

20

40

60

80

100

120

ou

ttu

rn

ou

ttu

rn

ou

ttu

rn

ou

ttu

rn

ou

ttu

rn

VII 2

01

9

III

20

19

VII 2

01

9

III

20

19

VII 2

01

9

III

20

19

2014 2015 2016 2017 2018 2019F 2020F 2021F

National EU

0.0

0.4

0.8

1.2

1.6

2.0

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019F

2020F

2021F

Framework 2007-2013 Framework 2014-2020

-30

-20

-10

0

10

20

30

40

2013 2014 2015 2016 2017 2018 2019P 2020P 2021P

Local governments

Other

Total

Page 27: Inflation and economic growth projection of Narodowy Bank ... · Inflation and economic growth projection of the NBP 13 Downside risk to gentle downward trajectory of GDP growth in

Inflation and economic growth projection of the NBP 27

Decomposition of NFC’s investment growth by firms’ share of revenues

from export (pp, y/y, current prices)

Source: GUS data, NBP calculations.

Expected increase in business investment growth in 2019, and then its gruadual decline

Absorption of EU funds for businesses, % GDP

Investment expenditure of medium and large non-financial corporations

(NFC) by ownership (pp. y/y, current prices)

NFC’s investments expenditures by assets (% y/y, current prices)

-25

-15

-5

5

15

25

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

private domestic public foreign other

-60

-40

-20

0

20

40

60

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

buildings and structures

machinery, technical equipment and tools

transport equipment

-25

-15

-5

5

15

25

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

no exports 1-49% 50%+

0.0

0.2

0.4

0.6

0.8

1.0

1.2

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019F

2020F

2021F

Framework 2007-2013 Framework 2014-2020

F – EAD forecast

Page 28: Inflation and economic growth projection of Narodowy Bank ... · Inflation and economic growth projection of the NBP 13 Downside risk to gentle downward trajectory of GDP growth in

Outline:

Inflation and economic growth projection of the NBP

Changes between rounds

Projection 2019 – 2021

▪ Economic condtions

abroad

▪ Polish economy

▪ GDP

- Consumption demand

- Investment demand

- Foreign trade

▪ Inflation

Uncertainty

28

Foreign trade

Page 29: Inflation and economic growth projection of Narodowy Bank ... · Inflation and economic growth projection of the NBP 13 Downside risk to gentle downward trajectory of GDP growth in

Inflation and economic growth projection of the NBP 29

-4

-3

-2

-1

0

1

2

3

4

5

-20

-15

-10

-5

0

5

10

15

20

25

12q1 13q1 14q1 15q1 16q1 17q1 18q1 19q1 20q1 21q1 21q4

Net exports contribution (pp, RHS)

Exports (y/y) (%)

Imports (y/y) (%)

Source: GUS data, NBP calculations.

Relatively high net exports’ contribution to growth in 19Q1 despite an ongoing slowdown in the euro area

Net exports:

Still relatively high competitiveness of the Polish economy.

High share of consumption goods in Polish exports,

compared to other countries in the region.

Slowdown in global trade and weaker economic growth in

the euro area in 2019-2021.

Continued high domestic demand growth.

y/y pp 2018 2019 2020 2021

Net exports

contribution to growth-0.2 -0.2 -0.3 -0.1

Page 30: Inflation and economic growth projection of Narodowy Bank ... · Inflation and economic growth projection of the NBP 13 Downside risk to gentle downward trajectory of GDP growth in

Inflation and economic growth projection of the NBP 30

Source: GUS data, OECD, Eurostat, NBP calculations.

Structural conditions of the Polish exports cushioned a slowdown in global trade

■ Consumption demand exhibits lower sensitivity to business cycle than investment demand – higher share of consumption in exports

may be considered a structural condition, partly mitigating weakening in global trade.

■ Price and cost competitiveness of the Polish economy remains high.

0

10

20

30

40

50

60

70

0

10

20

30

40

50

60

70

consumption investment

Share of consumption and investment final demand

in the exported value added in 2014 (%)

0

5

10

15

20

25

30

35

40

45

Poland Hungary Slovakia Czech Rep. Germany

Private sector Manufacturing

Hourly labour costs in the private sector and manufacturing in 2018 (EUR)

Page 31: Inflation and economic growth projection of Narodowy Bank ... · Inflation and economic growth projection of the NBP 13 Downside risk to gentle downward trajectory of GDP growth in

Inflation and economic growth projection of the NBP 31

Still high positive current and capital account balance in 2019 and its small decrease afterwards

Current and capital account balance (% GDP)

Source: GUS data, NBP calculations.

Polish exports of services (current prices, % and pp, y/y)

Share of services in exports and GDP (current prices, %)

-5

0

5

10

15

20

2012 2013 2014 2015 2016 2017 2018

Transport Other business services IT services

Foreign travel Processing Other

Total

0

5

10

15

20

25

2012 2013 2014 2015 2016 2017 2018

share of services' exports in GDP (%) share of services in exports (%)

-6

-4

-2

0

2

4

6

-6

-4

-2

0

2

4

6

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Remittances

Primary income

Secondary income

Goods and services

Current and capital account (% GDP)

Page 32: Inflation and economic growth projection of Narodowy Bank ... · Inflation and economic growth projection of the NBP 13 Downside risk to gentle downward trajectory of GDP growth in

Outline:

Inflation and economic growth projection of the NBP

Changes between rounds

Projection 2019 – 2021

▪ Economic condtions

abroad

▪ Polish economy

▪ GDP

- Consumption demand

- Investment demand

- Foreign trade

▪ Inflation

Uncertainty

32

Inflation

Polish economy

Page 33: Inflation and economic growth projection of Narodowy Bank ... · Inflation and economic growth projection of the NBP 13 Downside risk to gentle downward trajectory of GDP growth in

Inflation and economic growth projection of the NBP 33

Slight decrease in CPI inflation in 19Q1 due to lower energy prices inflation.

Increase in core inflation, caused mainly by higher prices of services.

Source: GUS data, NBP.

CPI and core inflation (y/y, %) Main core inflation components (y/y, %)

Decomposition of services prices inflation (pp)

Values from the March projection are given in brackets

(seasonally adjusted).

Indicators with values higher than in the March projection

are marked green, whereas indicators with lower values are

marked red

-2

-1

0

1

2

3

4

2013 2014 2015 2016 2017 2018 2019

Core inflation Services Goods

-2

0

2

4

6

-2

0

2

4

6

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

CPI Inflation target Core inflation

y/y, % 18q4 19q1

CPI inflation 1.4 1.2 (1.3)

Core inflation 0.7 1.1 (1.2)

Food prices 1.1 1.8 (1.5)

Energy prices 4.1 0.8 (1.4)

-1.5

-0.5

0.5

1.5

2.5

3.5

Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May

2018 2019

Other services Transport services Restaurants and hotels

Communication Insurance services Recreational and cultural services

Healthcare services Housing services Services

Page 34: Inflation and economic growth projection of Narodowy Bank ... · Inflation and economic growth projection of the NBP 13 Downside risk to gentle downward trajectory of GDP growth in

Inflation and economic growth projection of the NBP 34

Source: GUS data, NBP calculations.

CPI inflation will accelerate from last year’s low level (of 1.6%), staying within a permissible fluctuation

band of the inflation target over the projection horizon

Delayed effect of a current increase in cost pressure, stemming from

the labour market, and in demand pressure.

Stabilisation and decrease in cost and demand pressure over the

longer projection horizon.

Low inflation outside the Polish economy.

Złoty appreciation.

Increase in meat and cold meats prices due to the ASF epidemic in

China.

Low energy commodity prices.

Freezing of electricity prices for end-users in 2019 at the 2018 level,

permanent reduction in excise duty and interim fee, and

compensations paid to power companies in 2019.

Increase in electricity prices in 2020-2021 (phased effect of higher

production costs due to an increase in coal and CO2 emission

allowances prices).

y/y, % 2018 2019 2020 2021

CPI inflation 1.6 2.0 2.9 2.6

-2

-1

0

1

2

3

4

5

-2

-1

0

1

2

3

4

5

12q1 13q1 14q1 15q1 16q1 17q1 18q1 19q1 20q1 21q121q4

Core inflation Food prices

Energy prices CPI inflation

Page 35: Inflation and economic growth projection of Narodowy Bank ... · Inflation and economic growth projection of the NBP 13 Downside risk to gentle downward trajectory of GDP growth in

Inflation and economic growth projection of the NBP 35

Further increase in core inflation in the coming quarters due to rising labour costs and high demand

-3

-2

-1

0

1

2

3

4

5

6

-3

-2

-1

0

1

2

3

4

5

6

12q1 13q1 14q1 15q1 16q1 17q1 18q1 19q1 20q1 21q121q4

Output gap (% potential output)

GDP (y/y, %)

Potential output (y/y, %)

Source: GUS data, NBP calculations.

-1

0

1

2

3

4

5

6

-1

0

1

2

3

4

5

6

TFP Capital

NAWRU Economically active pop.

Potential output

-2

0

2

4

6

8

-2

0

2

4

6

8

12q1 13q1 14q1 15q1 16q1 17q1 18q1 19q1 20q1 21q1 21q4

Nominal wages (y/y, %) Labour productivity (y/y, %)

ULC (y/y, %)

-6

-4

-2

0

2

4

6

8

10

12

-6

-4

-2

0

2

4

6

8

10

12

12q1 13q1 14q1 15q1 16q1 17q1 18q1 19q1 20q1 21q121q4

y/y, % Import prices excl. oil and gas prices (y/y) (%)Import prices (y/y) (%)

Page 36: Inflation and economic growth projection of Narodowy Bank ... · Inflation and economic growth projection of the NBP 13 Downside risk to gentle downward trajectory of GDP growth in

Inflation and economic growth projection of the NBP 36

Inflation outside the Polish economy will remain moderate

Source: BEA, CBO, EAD calculations, Eurostat, OECD, Datastream, ONS.

Inflation (%, y/y) Core inflation in selected economies (%, y/y)

United States: output gap (%) and GDP deflator (%, y/y) Euro area: output gap (%) and value added deflator (%, y/y)

-2

-1

0

1

2

3

2015 2016 2017 2018 2019P 2020P 2021P

Output gap GDP deflator Output gap (forecast) GDP deflator (forecast)

-2

-1

0

1

2

3

2015 2016 2017 2018 2019P 2020P 2021P

Output gap VA deflator

Output gap (forecast) VA deflator (forecast)

0

1

2

3

4

5

6

2012 2013 2014 2015 2016 2017 2018 2019

Global economy Advanced economies Emerging markets

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

2012 2013 2014 2015 2016 2017 2018 2019

Japan Euro area UK US

Page 37: Inflation and economic growth projection of Narodowy Bank ... · Inflation and economic growth projection of the NBP 13 Downside risk to gentle downward trajectory of GDP growth in

Inflation and economic growth projection of the NBP 37

After temporary increase in 19H1, oil price is expected to gradually decline due to increasing

production in the US and weakening demand

Source: GUS data, Bloomberg, Reuters, EIA, NBP calculations.

Global production, consumption, and changes in crude oil inventories (mln b/d)

Market crude oil inventories in the US (mln b/d)Energy commodity prices index (USD, 2011=1) and crude oil prices (USD/b)

in the projection

0

20

40

60

80

100

120

140

0.2

0.4

0.6

0.8

1.0

1.2

1.4

12q1 13q1 14q1 15q1 16q1 17q1 18q1 19q1 20q1 21q1 21q4

Energy commodity price index (LHS) Brent oil (RHS)

300

350

400

450

500

550

600

2014 2015 2016 2017 2018 2019 2020

Inventories

-2

-1

0

1

2

3

4

5

6

85

90

95

100

105

2014 2015 2016 2017 2018 2019 2020 2021

Change in global crude oil inventories (implied, RHS)

Global crude oil production

Global crude oil consumption

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

2018 2019 2020

OPEC North America Eurasia South America Other non-OPEC countries

Changes in production of crude oil and liquid fuels in the world (mln b/d)

Page 38: Inflation and economic growth projection of Narodowy Bank ... · Inflation and economic growth projection of the NBP 13 Downside risk to gentle downward trajectory of GDP growth in

Inflation and economic growth projection of the NBP 38

Expected increase in meat and cold meats prices due to the ASF epidemic in China

Source: USDA,FAS, European Commission, GUS data, NBP calculations.

Food prices inflation (%, y/y) and index of agricultural commodity prices

-5.0

-3.0

-1.0

1.0

3.0

5.0

7.0

0.6

0.7

0.8

0.9

1.0

1.1

1.2

12q1 13q1 14q1 15q1 16q1 17q1 18q1 19q1 20q1 21q1 21q4

Index of agricultural commodity prices (EUR, 2011=1)

Food price inflation (RHS)

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

-20

-15

-10

-5

0

5

10

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019F

China EU

Change in pig population in China and European Union (%, y/y)

-20%

-10%

0%

10%

20%

30%

40%

50%

China Japan South Korea Philippines Hong Kong US Other

Change in pork exports from EU (Jan-Mar 2019, y/y)

Share of major trading partners in extra-EU pork exports(Jan-Mar 2019)

Pork exports from the EU in 19Q1 (%, y/y)

and major trading partners’ shares (%)

Decomposition of food prices inflation (pp y/y)

-2

0

2

4

6

8

2017 2018 2019

Oil and fats Milk, cheese and eggsFruit, vegetables MeatOther (fish, bread, confectionary, beverages) Food and non-alcoholic beverages

Page 39: Inflation and economic growth projection of Narodowy Bank ... · Inflation and economic growth projection of the NBP 13 Downside risk to gentle downward trajectory of GDP growth in

Outline:

Inflation and economic growth projection of the NBP

Changes between rounds

Projection 2019 – 2021

▪ Economic condtions

abroad

▪ Polish economy

▪ GDP

- Consumption demand

- Investment demand

- Foreign trade

▪ Inflation

Uncertainty

39

Uncertainty

▪ Risk factors

▪ Fan charts

Page 40: Inflation and economic growth projection of Narodowy Bank ... · Inflation and economic growth projection of the NBP 13 Downside risk to gentle downward trajectory of GDP growth in

Inflation and economic growth projection of the NBP 40

Risk area Description ImpactScale of

impact

Deterioration in the

global economic

outlook

▪ Escalation of current trade disputes and further spreading of protectionism, leading to larger disturbances in

the global trade, deterioration of economic conditions, elevated uncertainty and tensions in the financial

markets.

▪ Lower economic growth in the United States due to trade disputes and bigger drop in equity prices on

american stock exchange.

▪ Significant decline in economic growth in the euro area as a consequence of the imposition by the US of

duties on cars produced in the EU (crisis in the automotive industy and deterioration of economic activity in

other export-oriented industries).

▪ The United Kingdom's withdrawal from the European Union without prior agreement on the terms of future

cooperation – so called no-deal brexit (increase in uncertainty and lower economic growth both in the UK

and the EU)

Inflation

GDP

**

Impact of the energy

sector on inflation in

Poland

▪ Demand and supply shocks on global markets of oil and other energy commodities.

▪ Regulatory changes on the domestic electricity market.

▪ Scale and timing of the impact of the increase in wholesale electricity prices on the tariffs for end users.

Inflation

GDP *

Labour supply in

Poland

▪ Uncertainty related to the scale of reemigration of Ukrainian workers from Poland due to changes in law in

other EU countries, which will make it easier to employ the citizens of non-EU countries.Inflation

GDP *

Better economic

conditions abroad

and fiscal policy

▪ Higher economic growth abroad translating into higher domestic activity and into an increase in fiscal

revenues which results in more fiscal space and more expansionary fiscal policy than assumed in the

baseline scenario (which is based on the estimates contained in the April’s Convergence Programme).

Inflation

GDP *

Summary Inflation GDP

Page 41: Inflation and economic growth projection of Narodowy Bank ... · Inflation and economic growth projection of the NBP 13 Downside risk to gentle downward trajectory of GDP growth in

Inflation and economic growth projection of the NBP 41

GDP

y/y, %

central

path

50% probability

interval

2019 4.5 3.9 5.1

2020 4.0 3.0 4.8

2021 3.5 2.4 4.3

Source: GUS data, NBP calculations.

CPI

y/y, %

below

1.5%

below

2.5%

below

3.5%

below

centr.

path

within

1.5-3.5%

range

2019 14% 85% 100% 51% 86%

2020 18% 42% 70% 53% 53%

2021 31% 54% 77% 55% 46%

CPI

y/y, %

central

path

50% probability

interval

2019 2.0 1.7 2.3

2020 2.9 1.9 3.7

2021 2.6 1.3 3.5

CPI inflation y/y, % GDP y/y, %

-2

-1

0

1

2

3

4

5

6

7

-2

-1

0

1

2

3

4

5

6

7

16q1 17q1 18q1 19q1 20q1 21q1 21q4

90% 60% 30% central path inflation target

-1

0

1

2

3

4

5

6

7

8

-1

0

1

2

3

4

5

6

7

8

16q1 17q1 18q1 19q1 20q1 21q1 21q4

90% 60% 30% central path

Page 42: Inflation and economic growth projection of Narodowy Bank ... · Inflation and economic growth projection of the NBP 13 Downside risk to gentle downward trajectory of GDP growth in

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