growth overshadowed by hard-to-quantify risks
TRANSCRIPT
Samu Kurri
1Unrestricted
Bank of Finland
Growth overshadowed by hard-to-quantify risks
Monetary policy and the global economy Bank of Finland Bulletin 4/2016
29.9.2016
Suomen Pankki – Finlands Bank – Bank of FinlandSamu Kurri 2Unrestricted
Themes of the presentation
Global growth forecast little changed– Growth will barely accelerate in the immediate years ahead– Effects of Brexit hard to assess at this point
Inflation remains very subdued– Oil price effect to subside in early 2017– Difference between markets’ and economists’ inflation expectations a
source of concern
Risks to growth mainly on the downside– Some risks relate to economic factors that can be estimated by economics
tools– Some risks are difficult to assess in economic terms
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Suomen Pankki – Finlands Bank – Bank of FinlandSamu Kurri 3Unrestricted
Current situation and outlook for the real economy
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Suomen Pankki – Finlands Bank – Bank of FinlandSamu Kurri 4Unrestricted
Moderate global growth in early 2016
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-10
-5
0
5
10
15
2008 2010 2012 2014 2016
GDP, % change on previous year
Sources: National statistical authorities and Macrobond.32427
China
United States
Euro area
United Kingdom
Japan
Suomen Pankki – Finlands Bank – Bank of FinlandSamu Kurri 5Unrestricted
Stock exchanges do not signal any major improvement in growth …
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80
90
100
110
120
130
140
150
160
170
2015 2016
China Euro area United States
Japan Russia United Kingdom
Share price index, 100 = 1 Jan 2015
Source: Macrobond.32427
Suomen Pankki – Finlands Bank – Bank of FinlandSamu Kurri 6Unrestricted
… and neither do the soft statistics
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40
45
50
55
60
65
2015 2016
United States Euro area United KingdomChina Japan Russia
Index
Source: Macrobond.32427
PMI, composite
Suomen Pankki – Finlands Bank – Bank of FinlandSamu Kurri 7Unrestricted
Economists revised down 2017 growth forecasts, notably for the UK
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0
1
2
3
4
5
6
7
2016
GDP forecasts for 2017, % change on previous year
Consensus forecasts collected on the 7th–13th of each month.Sources: Consensus Economics (US, euro area and UK) and the IMF.23060
United Kingdom
Euro area
World
United States
China
Suomen Pankki – Finlands Bank – Bank of FinlandSamu Kurri 8Unrestricted
Estimates of the effects of Brexit surrounded by great uncertainty:notably for the UK economy …
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-1.5
-1
-0.5
0
0.5
1
1.5
2
2.5
3
01/16 02/16 03/16 04/16 05/16 06/16 07/16 08/16 09/16 10/16 11/16 12/16
Consensus: UK
Monthly GDP forecasts for 2017, annual growth
Source: Consensus Economics.23060@Chart10UK
United Kingdom
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Estimates of the effects of Brexit surrounded by major uncertainty:… but also for the euro area
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-1.5
-1
-0.5
0
0.5
1
1.5
2
2.5
3
01/16 02/16 03/16 04/16 05/16 06/16 07/16 08/16 09/16 10/16 11/16 12/16
Consensus: Euro area
Monthly GDP forecasts for 2017, annual growth
Source: Consensus Economics.
23060@Chart10EA
Euro area
Suomen Pankki – Finlands Bank – Bank of FinlandSamu Kurri 10Unrestricted
Inflation picture and underlying factors
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Suomen Pankki – Finlands Bank – Bank of FinlandSamu Kurri 11Unrestricted
Inflation in main economic regions remains subdued
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-4
-2
0
2
4
6
8
10
2008 2010 2012 2014 2016
Consumer price index, % change on previous year
Sources: Eurostat, national statistical authorities, OECD and Macrobond.32427
China
United States
United Kingdom
Euro area
Japan
Suomen Pankki – Finlands Bank – Bank of FinlandSamu Kurri 12Unrestricted
Inflation, GDP and monetary policy
Key factors underlying inflation developments– Inflation expectations– Actual inflation– Output gap, or the difference between actual output and output
at full capacity– Price of crude oil
Monetary policy works through– Anchoring of inflation expectations– Real economic developments.
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Suomen Pankki – Finlands Bank – Bank of FinlandSamu Kurri 13Unrestricted
Oil price an important one-off factor behind drop in inflation
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0
20
40
60
80
100
120
140
2014 2015 2016 2017 2018 2019 2020
USD/barrel
The Bank of Finland forecast assumption is the 10-day average of futures prices on 15 September 2016.Source: Macrobond.23060@FutuuritUusin
Oil price and futures prices forecast
Futures30 Jun 2014
Futures 15 Sep 2016
Futures 20 Jan 2016
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Sliding oil price not expected to influence longer-term inflation expectations
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0
0.4
0.8
1.2
1.6
2
2.4
0
0.4
0.8
1.2
1.6
2
2.4
2013 2014 2015 2016
Difference in expectations (right-hand scale)Long-term inflation expectations according to SPF surveyMarket expectations, 1 year 4 years ahead
% % points
Sources: ECB, Macrobond and Bank of Finland.27227@Chart27(3)
Gulf between inflation expectations of markets and professional forecasters has grown
Suomen Pankki – Finlands Bank – Bank of FinlandSamu Kurri 15Unrestricted
Euro area core inflation subdued …
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-5
-4
-3
-2
-1
0
1
2
3
4
2008 2010 2012 2014 2016
Core inflation
Core inflation, %
Sources: Eurostat, European Commission, OECD, IMF and calculations by the Bank of Finland.23060
Suomen Pankki – Finlands Bank – Bank of FinlandSamu Kurri 16Unrestricted
… as the output gap remains significant
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-5
-4
-3
-2
-1
0
1
2
3
4
-5
-4
-3
-2
-1
0
1
2
3
4
2008 2010 2012 2014 2016
Core inflation Output gap
Core inflation, % Output gap, % points
The shaded area delineates the range between the minimum and maximum output gap assessment.Sources: Eurostat, European Commission, OECD, IMF and calculations by the Bank of Finland.23060@EA_CoreCPI_GAP
Suomen Pankki – Finlands Bank – Bank of FinlandSamu Kurri 17Unrestricted
Bank of Finland forecast for the global economy
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Suomen Pankki – Finlands Bank – Bank of FinlandSamu Kurri 18Unrestricted
Forecast for the global economy little changed
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% change on previous year(previous forecast)
GDP 2015 2016f 2017f 2018fEU22 2.0 (1.7) 1.7 (1.6) 1.3 (1.8) 1.6 (1.8)
United States 2.6 (2.4) 1.6 (2.2) 2.3 (2.3) 2.2 (2.2)
Japan 0.6 (0.5) 0.4 (0.4) 0.9 (0.7) 1.0 (1.2)
China 6.9 (6.9) 6.5 (6) 6 (6) 5 (5)
Russia -3.7(-3.7) -1 (-3) 1 (0) 1.5 (1)
World 2.9 (2.8) 2.8 (2.8) 3.1 (3.2) 3.1 (3.2)
World trade 2.3 (1.4) 1.5 (2.7) 3.2 (3.8) 3.5 (4.0)f = forecastE22 = euro area, the UK, Sweden and Denmark.
Suomen Pankki – Finlands Bank – Bank of FinlandSamu Kurri 19Unrestricted
Oil price change broadly reflected in the inflation outlook
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% change on previous year(previous forecast)
Inflation 2015 2016f 2017f 2018fEU22 0.0 (0) 0.4 (0.2) 1.4 (1.4) 1.5 (1.6)
United States 0.1 (0.1) 1.1 (1.0) 2.1 (2.3) 2.2 (2.2)
Japan 0.8 (0.8) -0.1(0.2) 0.6 (1.5) 1.0 (1.4)
f = forecastE22 = euro area, the UK, Sweden and Denmark
Suomen Pankki – Finlands Bank – Bank of FinlandSamu Kurri 20Unrestricted
Forecast risks
Risks external to the euro area– Step-up in US productivity growth (+)– Protectionism, introversion (-)– Financial market disruption in China (-)
Risks internal to the euro area– Effects of Brexit (-)– Political uncertainty (in Italy), banking system in Italy (+/-)
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Suomen Pankki – Finlands Bank – Bank of FinlandSamu Kurri 21Unrestricted
Many unresolved issues remain in assessment of Brexit effects
What does Brexit mean? – Resignation likely to be triggered in early 2017– No information on negotiation objectives, negotiations likely to go on
beyond the end of 2018
Bank of Finland’s forecast mainly takes account of the trade effects of Brexit– UK growth forecasts surrounded by uncertainty– Assumptions of contagion effects marked by uncertainty
Bank of Finland forecast does not take account of the– Effects on the mobility of labour, on investment and productivity – Effects on the EU’s future internal dynamics
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Suomen Pankki – Finlands Bank – Bank of FinlandSamu Kurri 22Unrestricted
Chinese debt surging in all sectors
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0
50
100
150
200
250
300
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Corporate debt Household debtPublic debt Total debt
% of GDP
Source: BIS.
Suomen Pankki – Finlands Bank – Bank of FinlandSamu Kurri 23Unrestricted
Protectionism and turning inwards
World trade already sluggish for many years– Partly due to the prolonged recession
Protectionism back in the headlines– International trade boosts size of cake– Cake nevertheless unevenly divided
Political processes hard to assess– Brexit, free-trade negotiations, …– Uncertainty surrounding both probabilities and impacts
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Suomen Pankki – Finlands Bank – Bank of FinlandSamu Kurri 24Unrestricted
Globalisation and ICT boosted US productivity growth in 1995–2005
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-1
0
1
2
3
4
5
6
7
1987 1992 1997 2002 2007 2012
%, annual growth in labour productivity
Source: BLS.32428
1987-1994
1995-2004
2005-
Suomen Pankki – Finlands Bank – Bank of FinlandSamu Kurri 25Unrestricted
Thank you!
29.9.2016