Macroeconomic Outlook and Challenges for the CEE Region Luboš Komárek CFO Executive Summit Prague, 29 th April 2015
Outline I. Mapping out the current situation and economic forecast United States Euro Area CEE countries II. Economic challenges for the region Price of Oil in USD and national currencies Exchange rate development The situation in Ukraine and effects of sanctions on trade with the Russian Federation Germany a crucial trade partner for the CEE region 2
I.1 United States: GDP, leading indicators Although the USA has the most favourable GDP growth outlook among the advanced countries, its recovery slowed in late 2014 and early 2015. The economy is being affected by significant appreciation of the dollar, which is undermining the competitiveness of US exports. The economy is expected to grow by 2.5% 3.0% this year and at about the same rate in 2016. Leading indicators 120 100 80 60 40 20 2008 2009 2010 2011 2012 2013 2014 2015 150 130 110 90 70 Despite slackening, the leading indicators are still positive. UoM CSI CB CCI CB LEII (rhs) OECD CLI (rhs) 3
I.1 United States: inflation, interest rates The price level is being affected by the fall in oil prices, the appreciating dollar and despite a robust economic recovery by subdued wage growth. Inflation is expected to fluctuate slightly above zero this year and rise to a level around the Fed s inflation target (CF, Fed) or about 0.5 p.p. below it (IMF) next year. The likely interest rate growth in the USA has shifted to the second half of 2015, mainly due to a stronger US dollar. 4
I.2 Euro Area: GDP, leading indicators The GDP growth outlook was revised slightly upwards by all the institutions. Growth is expected to be around 1.5% this year and to rise by almost 0.5 pp in 2016. Leading indicators 103 102 101 100 99 98 97 96 95 2008 2009 2010 2011 2012 2013 2014 2015 OECD CLI EC ICI (rhs) ZEW ES (rhs) EC CCI (rhs) 80 60 40 20 0 20 40 60 80 The monitored leading indicators are signalling a faster recovery. The PMI in manufacturing reached a tenmonth high of 52.2 in April and is signalling accelerating expansion mainly in Germany, Spain, Italy and the Netherlands. 5
I.2 Euro Area: inflation, interest rates As at the start of the year, inflation will be affected over the coming months by the fall in oil prices. This fall has halted, however, and is being offset by the weaker euro. The outlook for interest rates in the euro area remains very low with no sign of growth until the end of 2016. This outlook reflects, among other things, the quantitative easing launched by the ECB in mid-march. 6
I.3: CEE Region: GDP growth in the EU (2014) Source: Eurostat 7
I.3: CEE Region: Medium-term GDP growth outlook in Europe Source: Eurostat Source: Consensus Forecasts 8
I.3: CEE Region: HICP inflation in the EU (2014) Source: Eurostat 9
I.3: CEE Region: Medium-term Inflation outlook in Europe Source: Consensus Forecasts 10
II.1 Economic challenges for the CEE region Price of Oil in USD and national currencies Economies facing positive supply shocks resulting from significantly lower oil prices (or more generally energy commodity prices). but stronger dollar partly compensate the effect on domestic price level at CEE countries. The outlook for oil prices is slightly rising over the entire forecast horizon. The price of natural gas will follow oil price development with a roughly 6 month time gap (implies decline of gas prices during 2015). 11
II.2 Economic challenges for the CEE region Exchange rate development According to the CF, the euro (dollar) will appreciate (depreciate) slightly at the two-year horizon against the dollar (euro) and against all the other monitored currencies except the Chinese renminbi. The rouble has been appreciating gradually since mid-march owing to the non-escalation of the conflict with Ukraine and stabilisation of oil prices. 12
The situation in Ukraine and effects of sanctions on trade with the Russian Federation Source: IMF II.3 Economic challenges for the CEE region Share of exports (imports) to the Russian Federation of total exports (imports) for CEEE countries in 2013 (v %) Exports Imports Czech Republic 3.2 5.0 Slovak Republic 2.6 10.0 Poland 5.2 10.4 Hungary 3.0 8.6 Bulgaria 2.5 18.6 Romunia 2.8 4.3 Latvia 16.2 8.0 Lithuania 20.0 28.2 Estonia 11.7 4.6 Slovenia 4.6 1.8 Croatia 3.2 7.1 The top three most connected countries: Exports: Lithuania, Latvia, Estonia Imports: Lithuania, Bulgaria, Poland Sanctions affect mainly the prices of: (i) meat products (quite a high effect for Hungary), (ii) dairy products (quite a high effect for Poland), (iii) fruits and vegetables (especially Poland).. but there will also be the effects of the abolition of milk quotas in the EU (price declines). 13
II.3 Economic challenges for the CEE region Economic outlook for Russia According to the latest Rosstat estimate, the Russian economy avoided recession last year and GDP growth reached 0.6%. This year, however, the economy will contract by 4.2% according to the April CF. Inflation was at 16.9% in March; it is expected to reach 12.8% (CF) this year as a whole and slow to 7.1% in 2016. The CBR lowered its key rate in mid- March to boost economic growth. 14
Germany a crucial trade partner for the CEE region Source: IMF II.4 Economic challenges for the CEE region Share of exports (imports) to Germany of total exports (imports) for CEEE countries in 2013 (v %) Exports Imports Czech Republic 31.7 30.3 Slovak Republic 22.1 18.5 Poland 26.1 27.6 Hungary 26.8 25.5 Bulgaria 12.5 10.9 Romunia 18.9 18.6 Latvia 7.1 11.5 Lithuania 7.3 10.6 Estonia 4.7 10.8 Slovenia 19.3 16.9 Croatia 11.0 13.6 The top three most connected countries: Exports: Czech Republic, Hungary, Poland Imports: Czech Republic, Poland, Hungary 15
II.4 Economic challenges for the CEE region Economic outlook for Germany The April CF expects a modest slowdown in economic growth in 2015 Q1, but this presents no threat to the favourable outlook for the year as a whole. The CF has repeatedly raised its GDP growth estimates for 2015 and 2016 and the April outlook foresees 1.9% and 2% respectively. The German economy moved further away from deflation in March, as inflation rose by 0.2 pp to 0.3%, mainly due to a slowing decline in energy prices. 16
Thank for your attention! www.cnb.cz Luboš Komárek Director, External Economic Relations Division, Monetary Department lubos.komarek@cnb.cz
GEO aims to pool information about the latest predictions and outlooks of international institutions, selected central banks and Consensus Economics for the main economic areas of the world. The global economic outlook is complemented with an analysis of a selected topical issue from the world economy. http://www.cnb.cz/en/monetary_po licy/geo/index.html Global Economic Outlook of the CNB 18