czech economy and the cnb ‘s forecast vladimír tomšík vice-governor, czech national bank
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Czech Economy and the CNB ‘s forecast Vladimír Tomšík Vice-Governor, Czech National Bank www.cnb.cz Embassy of the Czech Republic , Beijing , 29 September 201 4. Outline of the presentation. Czech Republic and its economy CNB, its legal mandate and monetary policy regime - PowerPoint PPT PresentationTRANSCRIPT
Czech Economy and the CNB‘s forecast
Vladimír Tomšík Vice-Governor, Czech National Bankwww.cnb.cz
Embassy of the Czech Republic, Beijing, 29 September 2014
• Czech Republic and its economy
• CNB, its legal mandate and monetary policy regime
• The current economic situation and CNB‘s forecast
• Conclusions
2
Outline of the presentation
• Czech Republic and its economy
• CNB, its legal mandate and monetary policy regime
• The current economic situation and CNB‘s forecast
• Conclusions
3
Outline of the presentation
4
Population: 10.3 mil.Area: 78 866 km2
Capital: Prague (1.3 mil.)Currency: Koruna (CZK)
1989 Velvet revolution1993 Separation of Czechoslovakia2004 Member of the EU
Small open economyExport oriented (automotive industry, etc.)Close trade relations with the euro area
Czech Republic
5
Level of economic development
• GDP per capita in PPP reaches 75 % of euro area average.• Catching-up process has bee temporarily interrupted by the global crisis.• Wage level in euro is slightly below 40 % of the euro area average.
6
Structure of the economy
• The Czech economy is highly industrialized.• The automobile sector is particularly strong in the Czech Republic.
7
• Openness of the Czech economy to foreign trade is high and increasing.• Exports reach almost 80% of Czech GDP.• In the last decade, Czech foreign trade is in a surplus.
Economic openness
8
• Machinery and transport equipment constitutes 50% of Czech exports.
Commodity structure of Czech exports
Czech exports by SITC(in CZK billions, in national concept)
0
200
400
600
800
1000
1200
1400
food beverages,tobacco
crudematerials
mineral fuels oils, fats chemicals manufacturedgoods
machinery,transport eq.
manufacturedarticles
commoditiesnot classified
2009 2010 2011 2012 2013
9
• European Union accounts for 85% of Czech exports.• Germany is by far the main trading partner, followed by Slovakia.
Territorial structure of Czech exports
Czech exports in territorial structure in 2013(in CZK billions, in national concept)
0
100
200
300
400
500
600
700
800
900
1000
Germany Slovakia Poland Austria France UnitedKingdom
RussianFederation
China Others
10
• Czech exports to China have been increasing, but the balance of trade with China remains in a significant deficit.
Czech trade with China
Czech trade with China (in CZK billions, in cross-border concept)
-350
-300
-250
-200
-150
-100
-50
0
50
100
150
200
250
300
350
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
exports imports balance
11
• The stock of FDI in the Czech Republic reaches 70% of GDP.• It is the second largest in the CEEC region (after Hungary).
FDI stock in the Czech Republic
• Czech Republic and its economy
• CNB, its legal mandate and monetary policy regime
• The current economic situation and CNB‘s forecast
• Conclusions
Outline of the presentation
12
13
• Monetary policy objective set forth− in the Constitution of the Czech Republic− in the Act on the Czech National Bank
• In particular, the CNB is required to maintain price stability
• The CNB shall support the general economic policies of the Government leading to sustainable economic growth− without prejudice to its primary objective − full independence of the CNB in its conduct of monetary policy
Legal mandate
14
• MP regime: inflation targeting (IT) since 1998
Monetary policy regimes
• Reasons for introducing IT• Inability of previous regime to anchor inflation and inflation expectations• Involuntary (market forced) abandonment of fixed exchange rate regime
in May 1997• Experience of IT central banks (RBNZ, BoC, BoE, SR, BoA etc.)
• Before 1998• mix of monetary targeting
and exchange rate peg (1991 – May1997)
• ER peg abolished in May ‘97 and monetary targeting applied till the end of 1997
15
• Publicly explicitly announced commitment to provide an anchor for inflation and inflation expectations
• Main monetary policy tool: 2W repo rate (but currently at „technically“ zero level)
• Managed floating exchange rate regime (but currently an exchange rate commitment as a further instrument at the ZLB)
• Key role for macroeconomic forecast
• High degree of monetary policy transparency
Inflation targeting: main principles
16
• A 2% target since January 2010.
Inflation targets
0
1
2
3
4
5
6
7
12/97 12/98 12/99 12/00 12/01 12/02 12/03 12/04 12/05 12/06 12/07 12/08 12/09 12/10 12/11 12/12 12/13
targets for net inflation
target band for headli ne inflation
point target for headline inflation
π
17
• The disinflation process was only very gradual in 1994-97.• It was temporarily reversed in 1997-98 (CZK depreciation, deregulations).• Inflation has been very low since 1999 (0.6% y-o-y in August 2014).
Inflation rate
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
0
2
4
6
8
10
12
14
16
18
20
22
Annual average (in %)
• Czech Republic and its economy
• CNB, its legal mandate and monetary policy regime
• The current economic situation and CNB‘s forecast
• Conclusions
18
Outline of the presentation
• Until last year, the Czech Republic lagged behind the other countries in the region in terms of GDP dynamics (protracted recession).
• The revival of economic growth occurred at the end of last year.• This year's GDP growth is due to a recovery in foreign demand,
the unwinding of fiscal tightening and weakening of the koruna.
International comparison: economic growth
19
I/08
II III IV I/09
II III IV I/10
II III IV I/11
II III IV I/12
II III IV I/13
II III IV I/14
II-10
-8-6-4-202468
10
European Union Euro area Czech Republic GermanyHungary Austria Poland Slovakia
Real GDP growth (in %)
-8.0
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
2009 2010 2011 2012 2013 2014 2015
% G
DP
(E
SA
95)
Public budget deficit Structural deficit (EC) Real government consumption (y-o-y %)
20
Fiscal policy
• Fiscal policy was strongly restrictive in 2009-2013.• The public budget deficit has declined to 1.5% of GDP in 2013, while the
structural deficit has almost disappeared, implying an end of the EDP.• The new government may pursue an expansionary fiscal policy for 2015.
• In November 2012, the CNB has hit the zero lower bound (ZLB).• Since then, the policy rates have been set at “technically” zero level:
0.05 % for the 2W repo rate and O/N deposit (i.e. discount) rate, and 0.25% for the O/N lending (i.e. Lombard) rate
Main policy interest rates
21
1/9323456789101112/931/9423456789101112/941/9523456789101112/951/9623456789101112/961/9723456789101112/971/9823456789101112/981/9923456789101112/991/0023456789101112/001/0123456789101112/011/0223456789101112/021/0323456789101112/031/0423456789101112/041/0523456789101112/051/0623456789101112/061/0723456789101112/071/0823456789101112/081/0923456789101112/091/1023456789101112/101/1123456789101112/111/1223456789101112/122013234567891011122014234567891011120
2
4
6
8
10
12
14
16
18
20
in
%
1W repo rate 75%, the Lombard rate 50%
in May 1997
the Lombard rate
discount rate
2W repo
22
CNB‘s November 2013 decision
• The Board decided to start using the exchange rate as an additional instrument for easing the monetary conditions, stating that: ”The CNB will intervene on the FX market to weaken the koruna so that the exchange rate is close to CZK 27/EUR.“
• The exchange rate level was chosen to avoid deflation or long-term undershooting of the inflation target and to speed up the return to the situation in which the CNB will be able to use its standard instrument, i.e. interest rates.
• The exchange rate commitment is one-sided. This means that the CNB will prevent excessive appreciation of the koruna exchange rate below CZK 27/EUR. On the weaker side of the CZK 27/EUR level, the CNB is allowing the exchange rate to move according to supply and demand on the FX market.
The exchange rate after the decision
• After the CNB‘s policy announcement, the exchange rate reached 27 CZK/EUR quickly, and has been moving at somewhat weaker levels since then.
• The exchange rate volatility has decreased significantly (both the actual one, and implied by the market pricing of the futures). 23
1/11 7/11 1/12 7/12 1/13 7/13 1/14 7/14 23.5
24.0
24.5
25.0
25.5
26.0
26.5
27.0
27.5
28.0
CZK/EUR 27 CZK/EUR level
I/10 II III IV I/11 II III IV I/12 II III IV I/13 II III IV I/14 II-6
-4
-2
0
2
4
6
Household consumption Net exports Gross fixed capital formation
Government consumption Change in inventories NPISH expenditure
• An economic recovery (2.7 % in 2.Q) is taking place, supported by investment and household consumption.
• The weaker exchange rate supported household consumption in 4.Q 2013. In 1.H 2014, the consumption growth continued.
• Net exports worsened due to imports and inventory investment for future production. This was in line with the expectations. 24
Contributions of aggregate demand components to the y/y GDP dynamics (in p.p.)
Structure of GDP growth
I/10
II III IV I/11
II III IV I/12
II III IV I/13
II III IV I/14
II III IV I/15
II III IV I/16
II III IV-3
-1
1
3
5
Manufacturing Trade and other service activities Construction Financial and business activities
Agriculture, forestry, fishing Mining, energy
• The recovery has been driven by export-oriented manufacturing sector, in line with the expectations.
• But other sectors have started to contribute positively, too. 25
Structure of gross value added growth
Contributions to the y/y dynamics of gross value added (in p.p.)
26
Industrial production and construction
Industrial production (constant prices, y/y, in %)
• The industrial production has started to grow, pulled mainly by foreign orders supported by a recovery in the euro area, as well as by the weaker exchange rate. But the domestic orders have been growing, too.
• Construction output has started recovering from a long recession.
1/10
23456789101112 1/11
23456789101112 1/12
23456789101112 1/13
23456789101112 1/14
234567-15
-10
-5
0
5
10
15 Industrial production
Seasonally adjusted data
Construction output (constant prices, y/y, in %)
1/10
23456789101112 1/11
23456789101112 1/12
23456789101112 1/13
23456789101112 1/14
234567-30
-25
-20
-15
-10
-5
0
5
10
15
20
Construction productionSeasonally adjusted dataHP trend
27
Confidence indicators
Consumer and business confidence (2005 = 100) Business confidence by sectors (2005 = 100)
• Consumer confidence has been growing.• The business confidence has improved mainly in the industrial sector
and trade, pessimistic expectations still prevail in the construction.
1/08
23456789101112 1/09
23456789101112 1/10
23456789101112 1/11
23456789101112 1/12
23456789101112 1/13
23456789101112 1/14
234565
70
75
80
85
90
95
100
105
110 Business Indicator
Consumers
Composite Indicator
1/10
23456789101112
1/11
23456789101112
1/12
23456789101112
1/13
23456789101112
1/14
234567840
50
60
70
80
90
100
110
Industry ConstructionTrade ServicesBusiness Indicator
28
Labour market
Unemployment rate (in %)
• Unemployment is gradually reduced following the recovery of the.• Enterprises responded to the reduced demand by shortening the length of
working time during the recession` now the opposite is taking place.• Unemployment rate has been declining.
I/06
II
III
IV
I/07
II
III
IV
I/08
II
III
IV
I/09
II
III
IV
I/10
II
III
IV
I/11
II
III
IV
I/12
II
III
IV
I/13
II
III
IV
I/14
II
3
4
5
6
7
8
9 General unemployment rate (ILO)
Share of unemployed persons
I/10
II III
IV
I/11
II III
IV
I/12
II III
IV
I/13
II III
IV
I/14
II III
IV
I/15
II III
IV
I/16
II III
IV
-4
-2
0
2
4
Hours worked per employee
Employees
Employees (full-time eqiuvalent)
Number od employees (full-time equivalent, in % a and in p.p.)
29
Labour market
Nominal wages (yoy, in %)
• Nominal wage growth last year even moved into negative territory, partly due to one-off effects of changes in the taxation of wages in the end of 2012. This year, wages revive roughly in line with expectations.
• Labour productivity grows mainly due to the recovery in the manufacturing sector.
Labour productivity (yoy, in %)
I/10
II III IV I/11
II III IV I/12
II III IV I/13
II III IV I/14
II-10
-5
0
5
10
15
Total Industry
Construction Market services
I/10
II III IV I/11
II III IV I/12
II III IV I/13
II III IV I/14
II-4
-2
0
2
4
6
Average wage
Business sector
Non-business sector
I/10
II III IV I/11
II III IV I/12
II III IV I/13
II III IV I/14
II-15
-10
-5
0
5
10
CZSO asking prices – PragueIRI asking prices – PragueCZSO asking prices – rest of CZCZSO transaction prices – rest of CZCZSO transaction prices (tax returns) – PragueCZSO transaction prices (survey) – Prague
I/
10
II III IV I/
11
II III IV I/
12
II III IV I/13
II III IV I/14
II90
95
100
105
110
115
130
135
140
145
150
155
Price-to-average wage Price-to-disposable incomePrice-to-rent (right-hand scale)
30
The property market
Prices of apartments (yoy in %)
• Developments in the property market in 2014 H1 confirm growth in real estate prices in Prague; prices are also starting to recover in the rest of the Czech Republic.
• Property price sustainability indicators suggest no financial stability risks coming from the housing market.
Apartment price sustainability indicators (2000–2007 average = 100)
31
I/09
IIIII
IV
I/10
IIIII
IV
I/11
IIIII
IV
I/12
IIIII
IV
I/13
IIIII
IV
I/14
IIIII
IV
I/15
IIIII
IV
-1
0
1
2
3
4
5
MP - relavant inflation Headline inflation
Inflation target
Monetary policy
horizon
• Inflation remained at a very low level in the 2.Q 2014. It will gradually move up starting the third quarter of this year.
• In summer of 2015, headline inflation will reach the target and will remain there throughout the rest of the forecasting horizon.
• Monetary policy-relevant inflation will follow the same profile as headline inflation and will be just below the inflation target at the MP horizon.
(y/y in %)
Inflation forecast
32
III/12 IV I/13 II III IV I/14 II III IV I/15 II III IV I/160
1
2
3
4
90% 70% 50% 30% confidence interval
• The forecast assumes that the exchange rate will be used as a monetary policy instrument until 2015 Q3.
• The risks to the forecast are assessed as being slightly anti-inflationary. Against this background, the Bank Board stated that the CNB would not discontinue the use of the exchange rate as a monetary policy instrument before 2016.
(3M PRIBOR in %)
Interest rate path
33
III/12
IV
I/13
II III IV
I/14
II III IV
I/15
II III IV
I/16
-4
-2
0
2
4
6
8
10
90% 70% 50% 30% confidence interval
GDP Growth Forecast
• GDP growth forecast: roughly 3% a year over 2014-2016.• Swift economic growth will be supported by growing foreign demand,
relaxed domestic monetary conditions and increased government investment.
• 2.7% growth in Q2 2014 was only slightly below the forecast.
(yoy in %)
• Czech Republic and its economy
• CNB, its legal mandate and monetary policy regime
• The current economic situation and CNB‘s forecast
• Conclusions
34
Outline of the presentation
35
• The Czech GDP reaches 75% of the euro area average.
• The Czech economy is very open and export-oriented, with a strong industrial tradition and a lot of FDI.
• The CNB‘s monetary policy is focused on maintaining price stability within the inflation targeting framework.
• Currently, interest rates are at the zero lower bound, and the CNB has started to use the exchange rate as a further instrument.
• The fiscal situation of Czech Republic has improved in recent years.
• The economy is recovering from the previous recession, supported by growing foreign demand, the end of fiscal austerity and by monetary policy easing.
Conclusions
