eesti pank economic statement 12 june 2013 · 6/12/2013 · eesti pank economic statement 12 june...
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Eesti Pank Economic Statement 12 June 2013
Key points of the presentation
12.06.2013 Eesti Pank Economic Statement 2
• The external environment • Review of the Estonian economy and forecast for the coming years • Economic policy implications
12.06.2013 3
Confidence is higher in Estonia than the average for the euro area • Despite a temporary setback in April this year, confidence has increased in
the euro area since the end of 2012
Source: European Commission
Confidence in Estonia and the euro area
Eesti Pank Economic Statement
60
70
80
90
100
110
120
2006 2007 2008 2009 2010 2011 2012 2013
Estonia euro area
12.06.2013 4
Inflation in the euro area has dropped below 2%
Source: Eurostat
Euro area growth and inflation
• Economic growth in the euro area has been negative for six consecutive quarters • Inflation expectations for the forecast period meet the target for price stability
(inflation in the euro area of below but close to 2% over the medium term)
Eesti Pank Economic Statement
-6%
-4%
-2%
0%
2%
4%
2005 2006 2007 2008 2009 2010 2011 2012 2013
euro area GDP growth, y-o-y euro area inflation, y-o-y
The economic forecast of the central banks of the euro area for 2013 is more pessimistic than it was in December 2012
12.06.2013 5
Euro area real economic growth
Source: Eurostat, European Central Bank
Euro area inflation
• Revival of the economy in the euro area has been postponed • Inflation has slowed as expected and price pressures remain subdued
Eesti Pank Economic Statement
-1,5%
-1,0%
-0,5%
0,0%
0,5%
1,0%
1,5%
2,0%
2,5%
2010 2011 2012 2013 2014
economic growth, y-o-y forecast range, December 2012 forecast range, June 2013 point forecast, June 2013
0%
1%
2%
3%
2010 2011 2012 2013 2014
forecast range, December 2012 forecast range, June 2013 growth, y-o-y point forecast, June 2013
Low interest rates support the recovery of the economy
12.06.2013 6
Three-month EURIBOR
Source: European Central Bank
• Weak price pressures mean that markets expect the low interest rates to remain in place
• Interest rate expectations have changed very little from half a year ago
Eesti Pank Economic Statement
0,0%
0,5%
1,0%
1,5%
2,0%
2011 2012 2013 2014 2015
June forecast 2013 December forecast 2012
The forecast for the oil price has not greatly changed since December 2012
12.06.2013 7
Oil price, US dollars/barrel
Source: European Central Bank
• Markets expect the oil price to fall to 95 US dollars in 2015 • Cheaper oil will contribute significantly to slower inflation
Eesti Pank Economic Statement
90
95
100
105
110
115
120
2011 2012 2013 2014 2015
June forecast 2013 December forecast 2012
The euro has strengthened against the US dollar
12.06.2013 8
Exchange rate of the US dollar and the euro
Source: European Central Bank
• The strengthening of the euro against the dollar has lowered the forecast energy price
Eesti Pank Economic Statement
1,20
1,25
1,30
1,35
1,40
1,45
2011 2012 2013 2014 2015
June forecast 2013 December forecast 2012
The Estonian economy is moving towards an equilibrium growth rate, the current slowdown is temporary
12.06.2013 9
Real Estonian economic growth
Source: Statistics Estonia, Eesti Pank
• GDP growth will accelerate in 2014 and 2015 supported by both domestic and external demand
• The equilibrium growth rate for the Estonian economy in the coming years is around 3.5% and this is driven by increased capital intensity and technological development
Eesti Pank Economic Statement
-15%
-10%
-5%
0%
5%
10%
15%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
June forecast 2013 December forecast 2012
The credit supply has not tightened in the last half year
12.06.2013 10
Loan interest rates
Source: Eesti Pank, European Central Bank
• Competition conditions have allowed banks to preserve their return on assets and equity at a time of very low interest rates by increasing interest margins
• Domestic risks to the stability of the financial sector have decreased • The support of the banking sector for funding the private sector remains strong
Eesti Pank Economic Statement
0%
1%
2%
3%
4%
5%
6%
7%
8%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
corporate loans 3-month EURIBOR housing loans
Investment activity remains high
12.06.2013 11
Loan stock growth
Source: Eesti Pank
• Low loan interest rates, favourable external financing, and an improving economic climate will keep investment activity high in Estonia in the coming years and this will be seen in loan growth
Eesti Pank Economic Statement
-15%
-10%
-5%
0%
5%
10%
15%
2008 2009 2010 2011 2012 2013 2014 2015
total credit stock housing loans stock households' other credit corporate credit
For Estonia’s economic growth to accelerate, external demand has to recover
12.06.2013 12
GDP, domestic demand and real growth in exports
Source: Statistics Estonia, Eesti Pank
Eesti Pank Economic Statement
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
real GDP growth real domestic demand growth real growth in goods and services exports
Estonian export development depends on the situation in target markets
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Structure of Estonian exports by target market, 2012
Source: Statistics Estonia
• Around one third of exports of Estonian goods go to Sweden and Finland • The seven main target destinations received 84% of total exports in 2012
Eesti Pank Economic Statement
15,9%
14,5%
12,1% 8,7%
5,4%
4,7%
4,5%
15,9% Sweden
Finland
Russia
Latvia
Lithuania
USA
Germany
other
Growth in external demand is more modest than expected
12.06.2013 14
External demand growth
Source: European Central Bank
• External demand has grown more slowly than expected in the previous forecast • External demand growth will start to pick up this year • The biggest boost to exports will come from Sweden, Finland and Russia
Eesti Pank Economic Statement
-2%
0%
2%
4%
6%
8%
10%
2011 2012 2013 2014 2015
Sweden Finland Russia Latvia Lithuania Germany USA Denmark other countries external demand growth, June 2013 external demand growth, December 2012
The current account remains close to balance
12.06.2013 15
Current account as a ratio to GDP
Source: Statistics Estonia, Eesti Pank
• The current account position will improve during the forecast horizon mainly due to a shrinking of the deficit in the trade account
• Net export growth will be supported by a rise in external demand and an improvement in trade terms
Eesti Pank Economic Statement
-30%
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
goods services revenues current transfers current account position
The labour market continues to improve
12.06.2013 16
Unemployment rate
Source: Statistics Estonia, Eesti Pank
• The share of long-term unemployed falls as unemployment in general declines • The unemployment rate has reached a level of balance • It becomes ever more important to make the labour force more efficient
Eesti Pank Economic Statement
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
% o
f lab
our f
orce
24 months and more 12 to 23 months 6 to 11 months less than 6 months unemployment rate equilibrium rate of unemployment
Wage growth remains strong, growth in employment slows
12.06.2013 17
Wage and employment growth
Source: Statistics Estonia, Eesti Pank
• The shrinking of the working age population will slow employment growth even as unemployment falls
• Wage growth has been built on increased productivity • Wage growth will accelerate in the years ahead as economic activity
increases
Eesti Pank Economic Statement
-10%
-5%
0%
5%
10%
15%
20%
25%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
growth rate of the average monthly gross wage employment growth
Inflation will slow in the coming years
12.06.2013 18
Consumer Price Index (CPI) growth
Source: Statistics Estonia, Eesti Pank
• Core inflation dependent on domestic factors has remained low • Higher electricity prices are affecting inflation in 2013 • The inflation forecast assumes global-market prices for oil and for food commodities will fall
Eesti Pank Economic Statement
-2%
0%
2%
4%
6%
8%
10%
12%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
core inflation household energy fuels food CPI
The general government budget is forecast to reach nominal balance in 2014
12.06.2013 19
Budget position
Source: Statistics Estonia, Eesti Pank
• The general government budget position remains in structural surplus • General government debt will grow more slowly in the forecast horizon
than GDP and the debt level will decrease
Eesti Pank Economic Statement
0
0
0
0
0
0
0
0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
% o
f GD
P
structural budget balance cyclical component temporary measures nominal budget balance
Conclusions of the Economic Forecast
12.06.2013 20 Eesti Pank Economic Statement
The Estonian economy will continue on its balanced course
• The Estonian economy is more balanced since the crisis than it was before • The balance sheets of households and companies have significantly
improved, the loan burden has fallen as a ratio to GDP • Stabilisation of the economy is also shown by the near balance in the
current account deficit and the general government budget • Growth will accelerate in 2014 with support from revitalised domestic and
external demand to near its potential • Consumer price inflation will remain subdued throughout the forecast
horizon
12.06.2013 21 Eesti Pank Economic Statement
Possible risks
The more balanced post-crisis economy has become less vulnerable, though both the public and the private sectors need to consider possible risks
• A recovery in external demand is still not certain and this may pose a risk to the exporting sector
• The combined effect of low interest rates and increasing confidence may be overly optimistic consumption behaviour and inflated property prices
• Access to cheap lending must not lead to an underestimate of risks or an overestimate of loan servicing capacity
• The oil price could rise if global demand increases, and this could raise inflation • Structural unemployment and labour shortages, partly due to emigration, could
cause excessive wage growth pressure and accelerated inflation and this could damage the competitiveness of exports
12.06.2013 22 Eesti Pank Economic Statement
The government still has an important role in maintaining the credibility of the economy
• Achieving balance in the general government budget by 2014, as called for in the national budget strategy, will increase trust in the economy
• A nominal surplus in the budget in 2015 will be important for the state to increase its reserves, which can be used to rebalance the economy in the event of the negative risks being materialised
• Active labour market measures to reduce structural unemployment are required to ensure long-term economic growth
12.06.2013 23 Eesti Pank Economic Statement
Challenges for future development
The shrinking of the working age population will have an increasing impact on the labour market
• In the next few years there may for the first time be a drop in employment even while unemployment is simultaneously falling
• The importance of labour force participation and the efficient use of labour will increase
• Limited labour resources mean that the main way to ensure a move towards higher value added production is to increase the supply of capital for labour and to improve the qualifications of employees
12.06.2013 24 Eesti Pank Economic Statement
Key indicators for the Eesti Pank economic forecast
12.06.2013 25
2012 2013 2014 2015
GDP (billion euros) 17.0 17.9 19.2 20.7
Change in GDP at constant prices (%) 3.2 2.0 4.2 4.3
CPI inflation (%) 3.9 3.0 2.5 2.7
Unemployment rate (%) 10.2 9.2 8.8 8.5
Change in average gross wages (%) 5.9 5.1 6.4 7.4
Budget balance (% of GDP) -0.3 -0.3 0.0 0.2
Economic forecast in figures
Source: Statistics Estonia, Eesti Pank
Eesti Pank Economic Statement