revisions of macroeconomic forecasts april 2016 · 2016-05-06 · revisions of macroeconomic...
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Revisions of macroeconomic forecasts
– April 2016 -
Governor
Dimitar Bogov
May 2016
Contents:
Review of risks between the two forecasts
External assumptions
Baseline macroeconomic scenario
Alternative macroeconomic scenario
Review of risks between the two forecasts
Pronounced adverse risks ...
... primarily related to the domestic political crisis...
...as well as with the external environment - slow recovery of the global economy, downward revision of the global growth forecast, geopolitical risks.
Baseline macroeconomic scenario - assumption for rapid stabilization
of the political context.
The deteriorating political environment in the last stages of forecast and the initial spillover effects on the confidence and expectations of economic agents have created a need for an alternative macroeconomic scenario which assumes continuation of political instability until the end of the year.
In this forecast cycle: downward correction of foreign effective inflation...
...amid downward revisions of the expectations for oil prices and prices of cereals.
-1.3
-0.8
-0.3
0.2
0.7
1.2
-2.6
-1.6
-0.6
0.4
1.4
2.4
2013
Q1
Q3 2014
Q1
Q3 2015
Q1
Q3 2016
Q1
Q3 2017
Q1
Q3
Foreign effective inflation
(annual rates in %)
changes in p.p. (right axis)
CF September 2015
CF March 2016
-18
-12
-6
0
6
30
40
50
60
70
80
90
2013
Q1
Q3 2014
Q1
Q3 2015
Q1
Q3 2016
Q1
Q3 2017
Q1
Q3
Brent oil(quarterly average, EUR/Barrel)
changes in EUR
(right axis)October 2015
April 2016
Contrary to the global economic outlook, the foreign effective demand for Macedonian products has been revised upwards, in line with the optimistic growth outlook of some trading partners.
For 2016, the foreign demand is expected to increase by 1.5% (1.4% in October), while for 2017, it was revised upward (from 1.5% in October to 1.9%).
-1.0
-0.5
0.0
0.5
1.0
1.5
-2.0
-1.0
0.0
1.0
2.0
3.0
2013
Q1
Q3 2014
Q1
Q3 2015
Q1
Q3 2016
Q1
Q3 2017
Q1
Q3
Foreign effective demand
(annual changes in %)
changes in p.p. (right axis)
CF September 2015
CF March 2016
Baseline macroeconomic scenario
GDP forecast
During the forecast horizon, the growth rate is expected to remain solid - growth of 3.5% for 2016, and 4% for 2017.
The projected pace and structure of growth remain unchanged compared with the
October forecast. The assumptions about the fundamental growth factors have remained the
same: investment and exports continue being driving forces of growth, with additional impetus from private consumption
- public investment in infrastructure, investment in new facilities by foreign investors,
increased activity of new export facilities, favorable labor market conditions, credit support from domestic banks.
GDPDomestic
demand
Net
exports
% % p.p. % p.p. % p.p. % p.p. % p.p.
2016 3.5 2.7 1.9 7.9 2.2 5.9 3.0 6.2 -4.3 3.4 0.5 4.7 -1.2
2017 4.0 2.7 1.9 8.8 2.4 4.3 2.2 4.1 -2.9 1.4 0.2 4.6 -0.6
contrib. in p.p.
Private
consumption
Gross capital
formation
Exports of goods
and services
Imports of goods
and services
Public
consumption
Inflation forecast
Lower inflation in 2016 than expected in the October forecast: a downward correction from 1.5% to around 0.5% in 2016.
Lower performance in the first quarter and downward revision of import prices.
A positive output gap in the period 2016-2017.
For 2017 - inflation rate of 1.6% amid positive output gap, higher food and energy prices, and increased foreign effective inflation.
Risks to the projected path of inflation are downward and mainly attributable to the uncertainty about the global economy and the prices of global primary commodities.
-4.0
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
2013 2014 2015 2016 2017
Inflation rate(in %)
revisions (in p.p.)
Inflation (April 2016)
Inflation (October 2015)
A smaller current account deficit for 2016 and 2017 than projected in October lower energy deficit; lower income deficit - lower reinvested profit. The current account deficit in 2016-2017 remains moderate and stable improved balance of goods and services - lower energy deficit, increased net exports of new facilities; unfavorable trends in export of metals in 2016 and recovery in 2017; moderate decrease in the surplus in current transfers.
-6.8
-2.0 -2.5 -3.2-1.6 -0.8 -1.4 -1.2 -1.4
-30.0
-20.0
-10.0
0.0
10.0
20.0
30.0
2009 2010 2011 2012 2013 2014 2015 2016 2017
Current account deficit in the balance of payments(% of GDP)
Trade balance of goods and services Primary income Secondary income Current account deficit
April 2016
-1.9 -2.4
-30.0
-20.0
-10.0
0.0
10.0
20.0
30.0
2016 2017
Ocotber 2015
Lower net financial inflows compared with the October forecast - mainly due to reduced foreign investment and lower net borrowing of the private sector.
During the entire forecast horizon, foreign reserves adequacy indicators have
ranged within the safe zone.
6.4
2.8
6.8
4.7
0.8
5.2
-1.0
1.1
2.9
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
10.0
12.0
2009 2010 2011 2012 2013 2014 2015 2016 2017
Financial account structure(% of GDP)
Other, net
Direct investment, net
Private sector net-borrowing
Governmnet net-borrowing
Financial account
April 2016
1.8
4.1
-10.0
-5.0
0.0
5.0
10.0
15.0
2016 2017
Ocotber 2015
Forecast of credit and deposit growth
Estimates for steady economic growth, amid deposit growth and stable risk perceptions of banks, will contribute to the continuation of solid credit growth, which is expected to reach 6.8% at the end of 2016 and 7% at the end of 2017.
It is expected that the deposit growth will be 6% in 2016 and for 2017, it is estimated to accelerate and climb to 7.2%.
The banking system remains stable, liquid and highly capitalized.
40.0
42.0
44.0
46.0
48.0
50.0
52.0
54.0
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
20.0
2010 2011 2012 2013 2014 2015 2016 2017
Credit and deposit growth
Total credit, y-o-y changes, in %
Total deposits, y-o-y changes, in %
Total credit share in GDP, in % (RHS)
Alternative macroeconomic scenario
Decreased public confidence
Increased propensity for foreign currency -
lower private transfers
Withdrawal of deposits - lower deposit growth
Reduced private consumption
Increased distrust of investors
Lower FDI inflows and lower domestic
investment
Unfavorable labor market
developments
Risks to financing of economy
Consequences
Lower lending
Lower exports, thus lower imports
Slower economic growth and
reduced price level
Reduced foreign reserves
Lower GDP growth: 1.6% in 2016 and 3.9% in 2017. Compared to the baseline scenario, the greatest downward deviation would be registered
in private consumption and investment, exports would be similar, and imports would be slightly lower.
Opening of negative output gap with downward pressures on prices.
-2
-1
0
1
2
3
4
5
6
7
Q1
2014
Q3 Q1
2015
Q3 Q1
2016
Q3 Q1
2017
Q3
GDP
(y-o-y changes, in %)
alternative scenario
baseline
-3
-2
-1
0
1
2
3
4
5
6
Q12014
Q3 Q12015
Q3 Q12016
Q3 Q12017
Q3
Private consumption
(y-o-y changes, in %)
alternative scenario
baseline
-20
-10
0
10
20
30
40
Q12014
Q3 Q12015
Q3 Q12016
Q3 Q12017
Q3
Gross capital formation(y-o-y changes, in %)
alternative scenario
baseline
Larger current account deficit, due to reduced inflows of private transfers (net purchase from the currency exchange market). Yet, the deficit remains moderate at about 2% of GDP in 2016 (compared to 1.2% in the baseline scenario).
-6.8
-2.0 -2.5 -3.2-1.6 -0.8 -1.4 -1.2 -1.4
-30.0
-20.0
-10.0
0.0
10.0
20.0
30.0
2009 2010 2011 2012 2013 2014 2015 2016 2017
Current account deficit in the balance of payments(% of GDP)
Trade balance of goods and services Primary income Secondary income Current account deficit
Baseline scenario
-2.0 -2.8
-30.0
-20.0
-10.0
0.0
10.0
20.0
30.0
2016 2017
Alternative
scenario
Alternative scenario
- financial account -
Deteriorated financial account, due to: lower direct investment and net borrowing of the government and
the private sector; higher net outflows in currency and deposits of other sectors
(increased preference for liquid foreign assets).
6.4
2.8
6.8
4.7
0.8
5.2
-1.0
1.1
2.9
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
10.0
12.0
2009 2010 2011 2012 2013 2014 2015 2016 2017
Financial account structure(% of GDP)
Other, net
Direct investment, net
Private sector net-borrowing
Governmnet net-borrowing
Financial account
Baseline scenario
-1.0
1.5
-10.0
-5.0
0.0
5.0
10.0
15.0
2016 2017
Alternative
scenario
Slower economic activity and weaker foreign exchange flows - weaker deposit growth (2.3% rather than 6% in 2016), which along with the lower demand and supply of loans results in slower credit growth compared to the baseline scenario (3% rather than 6.8%).
2
3
4
5
6
7
8
9
10
11
12
Q1
2014
Q3 Q1
2015
Q3 Q1
2016
Q3 2017
Credit
(y-o-y changes, in %)
alternative scenario
baseline
2
3
4
5
6
7
8
9
10
11
12
Q12014
Q3 Q12015
Q3 Q12016
Q3 2017
Deposits(y-o-y changes, in %)
alternative scenario
baseline
Summary
Risks to the two scenarios:
- External environment is uncertain and unfavorable;
- Domestic political risks are particularly pronounced.
The alternative scenario clearly shows the effects of political instability on the economy.
In response to the deteriorating expectations due to the political situation, the NBRM has increased the policy rate from 3.25% to 4%, and today, we have adopted new monetary measures.
It is worth mentioning that the economic fundamentals remain sound and in recent days, the pressures on currency exchange market and deposits have alleviated.
The NBRM will continue to closely monitor and, if necessary, take additional measures to fully stabilize the expectations of economic agents.
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