NBP_Presentation_London_2014Oct

Marek Belka - Governor of the National Bank of Poland
Poland in European Union.
Poland in the euro area?
London / October 2014
2
Outline
1
The transition from a planned to a market economy.
2
Integration of the Polish economy with the EU.
3
Poland’s economic performance during the crisis.
4
The challenge of euro adoption.
3
1
The transition from a planned to a market
economy.
The transition from a planned to a market economy.
4
Transition from a planned to a market economy was strongly
anchored to the European integration process…
4th June 1989 – first post-war free elections
1989
Shock
Shock
Theraphy
Therapy
• 1989 – liberalisation of prices.
• 1990 – fixing PLN against USD (as an anti-inflationary anchor).
• 1991 – PLN devaluation followed by a crawling peg imposition (combining
exports competitiveness and disinflation process)
1989 – Agreement on Trade
and Cooperation with
European Communities.
1991
• Reduction of foreign debt:
• 1991 - Paris Club,
• 1994 - London Club.
Stabilisation • 1995 – FX crawling band and external PLN convertibility.
1991 – Poland signs the
Europe Agreement.
1994 – application for the
EU membership.
1995
Pre-EU
Integration
2004
•
•
•
•
1996 – OECD membership.
1998 – adoption of inflation targeting by NBP.
2000 – free floating of PLN exchange rate.
2004 – permanent inflation target at 2.5% (+/- 1 p.p.).
1st May 2004 – EU accession
1998 – start of EU
accession negotiations.
2002 – completion of
negotiations.
The transition from a planned to a market economy.
5
…which can be seen mainly as a success story…
Consumer price level changes in Poland
From 1988 to 2004:
100
■
90
CPI
Public sector share in total
employment declined from 75% to
30%.
Annual CPI inflation slowed down
from 58% to 4.4%.
■
Exports of goods rose from 20% to
29.2% of GDP.
■
Share of UE15 in goods exports
increased from 41% to 67%.
80
70
NBP reference
rate
60
YoY, %
■
50
40
30
20
10
Source: NBP.
Jan-05
Jan-03
Jan-01
Jan-99
Jan-97
Jan-95
Jan-93
In 2003, 77% of Poles voted for
Poland’s accession to the EU
in a nationwide referendum.
Jan-91
0
The transition from a planned to a market economy.
6
…resulting in improvement of living standards at pace rarely seen in
other transition economies.
GDP per capita in selected countries (USD PPP, 1990=100)
12 286
USD
250
200
5728
USD
150
100
50
1990
1995
2000
Source: Penn World Tables.
2004
Slovak
Rep.
Czech
Rep.
Bulgaria
Romania
Hungary
Slovenia
Poland
Estonia
0
7
2
Integration of the Polish economy with the
European Union.
Integration of the Polish economy with the EU.
8
The Polish economy has strong trade linkages with the EU…
Export shares (2013)
Import shares (2013)
Euro area
DE
25%
25%
Euro area
EU excl. Euro area
ROW
32%
FR
27%
14%
IT
Others
Others
ES
ATBE
NL
SK
ROW
NL
28%
IT
23%
EU excl. Euro area
DE
26%
Source: Eurostat, NBP calculations.
FR
BE
ES AT SK
Integration of the Polish economy with the EU.
9
…supported by large inflows of FDI…
■
■
More than 90% of
FDI stock originates
from the European
Union.
Poland is ranked
14th in the top
prospective host
destinations for
2013-15 in the
UNCTAD survey (the
highest position
among NMS).
Origin of inward FDI stock (2012)
bn of EUR
% of GDP
95
180
160
90
140
80
120
80
100
67
70
80
60
60
40
100
60
47
45
50
20
0
40
Poland
Euro area (l.a.)
Czech
Republic
Hungary
Romania
EU excl. euro area (l.a.)
Slovakia
ROW (l.a.)
Source: Eurostat, NBP calculations.
Bulgaria
Total FDI (r.a.)
Integration of the Polish economy with the EU.
10
…with a well-diversified structure.
Inward FDI stock by economic activity
(2012)
Inward FDI stock by country (2012)
DE
15%
ROW
20%
25%
AT
3%
32%
NL
15%
UK
4%
5%
US
5%
14%
SE
5%
24%
Manufacturing
Trade and repairs
Other
FR
12%
Financial intermediation
Construction
Source: OECD.
ES
5%
LU
10%
IT
6%
Integration of the Polish economy with the EU.
11
The large scale of EU funds inflow contributed to private and
public investment intensification…
Investment in the Polish economy
EU Funds transfers
7
6
Cohesion Fund
25,00
European Regional Development Fund
20,00
GFCF-housing
GFCF-public sector
GFCF-enterprises
GFCF
Common Agricultural Development Fund
5
15,00
European Social Fund
10,00
EU transfers balance
4
5,00
3
0,00
2
-5,00
-10,00
1
Source: NBP.
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
-1
2004
-15,00
0
Sources: Central Statistical Office data; National Bank of Poland estimates.
Note: The NECMOD model is the new forecasting model of the NBP.
Integration of the Polish economy with the EU.
12
…as well as Poland’s development and building-up of the human
capital…
■
In 2007-2013, almost 60% of
funds were devoted to the
development and modernization of
basic infrastructure such
as wastewater treatment plants
and the road system (over 10k km
of roads were built or
modernized).
■
The EU cohesion policy also
supported innovation, R&D and
entrepreneurship.
■
The net effect of cohesion policy
funds on the GDP level in the
forthcoming financing perspective
2014-20 is estimated at 4 to 5%
at the end of the spending
period.
IDEA!
Integration of the Polish economy with the EU.
13
…which improved competitiveness of the Polish manufacturing
sector and changed the structure of exports.
Structure of the Polish merchandise exports
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
13%
11%
16%
Share in world exports of goods and services
(1995=100)
190
170
22%
43%
42%
150
130
23%
18%
110
16%
40%
25%
22%
90
70
50
1995
2005
2012
Unclassified
High-skill and technology-intensive
Medium-skill and technology-intensive
Low-skill and technology-intensive
Labour-intensive and resource-intensive
Source: UNCTAD data, NBP calculations.
1995
1997
1999
2001
2003
2005
2007
2009
2011
Germany
France
United Kingdom
Italy
Spain
Ireland
Poland
Portugal
Greece
Source: Eurostat.
2013
Integration of the Polish economy with the EU.
14
Apart from trade linkages, Poland is also strongly connected to the
EU through the banking sector…
■
Polish banking system is
largely foreign-owned.
■
Foreign claims of BIS reporting
banks in Poland amount to 63%
of Polish GDP:
■
83% of these claims
consist of: assets of foreign
European banks’
subsidiaries and crossborder funding from
European banks.
Ownership structure of the Polish banking sector in
2013 (per cent of assets)
4%
8%
5%
37%
6%
8%
9%
11%
Domestic
USA
Italy
France
Germany
Portugal
12%
Netherlands
Others
Source: Polish Financial Supervision Authority.
Spain
Integration of the Polish economy with the EU.
15
■
■
Most popular destinations are the
United Kingdom, Germany and
Ireland.
Various research show that the UK
attracts better educated
immigrants (in 2007, 26% of Polish
immigrants had tertiary education).
Thousand
… and enhanced migration from Poland to EU15 countries,
escpecially UK after the EU accession.
Emigration from Poland to Germany, Ireland, the
Netherlands, and the UK, 2004-2012
800
DE
IE
NL
UK
700
600
500
400
300
■
Moreover, between 2001 and 2011
EEA immigrants in the UK have on
average contributed 34% more in
taxes than they have received as
transfers (Dustman et al.2013).
200
100
0
2004
2005
2006
2007
2008
2009
Source: Eurostat.
2010
2011
2012
16
3
Poland’s economic performance during
the crisis.
Poland’s economic performance during the crisis.
17
Poland weathered relatively smoothly through the crisis. There
are three main reasons for such a turnover…
Cumulative GDP growth rates in selected EU countries, 2008-2013
15
10
5
0
-5
-10
-15
-20
Source: World Bank.
GRC
SVN
CYP
ITA
ESP
LVA
IRL
FIN
HUN
NLD
DNK
CZE
BGR
LTU
FRA
EST
BEL
AUT
DEU
SVK
SWE
POL
-25
Poland’s economic performance during the crisis.
18
8
400
7
350
60% limit (Maastricht fiscal criterion)
Private sector debt in 2012 (% GDP)
Std dev. of output gap (2004 -2013)
…first, since EU accession sound economic policy has kept the
economy stable in terms of inflation and output gap; good
regulations hampered the excessive rise of debt…
6
5
4
3
2
1
0
0,5
1
1,5
2
2,5
Std dev. of monthly HICP (yoy, 2004-2013)
Source: Eurostat, OECD database.
250
133% threshold
for 2014
(Macroeconomic
Imbalances
Procedure)
200
150
100
50
PL
0
300
3
PL
0
0
50
100
150
Public debt in EU countries in 2013 (%GDP)
Source: Eurostat.
200
Poland’s economic performance during the crisis.
19
…second, floating exchange rate cushioned the impact of the
crisis by improving (price) competitiveness of Polish exporters...
Average threshold exchange rate
Actual exchange rate
Confidence interval for the treshold rate
5,0
EUR/PLN
4,5
4,0
3,5
Source: Eurostat.
Note: The threshold exchange rate at which exports become profitable is determined by computing the average of
responses to a question included in the NBP quick monitoring survey addressed to enterprises.
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
3,0
Poland’s economic performance during the crisis.
20
…third, Polish banking sector is well capitalised and liquid.
Banking sector net profit (lhs)
per cent
0,5
2
0,0
0
Source: Polish Financial Supervision Authority.
Jun-13
4
Mar-13
1,0
Dec-12
6
Sep-12
1,5
Jun-12
8
Mar-12
2,0
Dec-11
10
Sep-11
2,5
Jun-11
12
Mar-11
3,0
Dec-10
14
Sep-10
3,5
Jun-10
16
Mar-10
4,0
Dec-09
It is worth noting that currently
profits from Polish subsidiaries
constitute an important share of
consolidated profits for some
European banking groups.
18
bln PLN
Sep-09
■
Major risk to financial stability in the
form of rapid expansion of FX
lending has been eliminated.
4,5
Jun-09
■
The banking sector has remained
well capitalized, liquid, and
profitable.
Mar-09
■
Capital adequacy ratio (rhs)
21
4
The challenge of euro adoption.
The challenge of euro adoption.
Poland, as a Member State with derogation, agreed to introduce
euro. Thus, the question is not „if” but „when” should Poland
adopt the common currency.
22
The challenge of euro adoption.
23
Our look on the euro adoption has changed during the crisis:
Before the crisis:
Euro adoption means:
After the crisis:
■
the reform of the institutional setup of the euro area (sixpack,
twopack, fiscal compact, banking union, ESM, OMT)
constitute an additional factor in the analyses of euro
adoption,
■
the experience of some countries shows that accession to
the eurozone could lead to the accumulation of significant
macroeconomic imbalances,
■ a decrease in interest rates,
■ a reduction in the exchange rate risk,
■ the removal of transaction costs,
■ an increase in macroeconomic stability,
Main message:
adopting the euro will boost economic
growth and welfare
Main message:
adopting the euro is a chance to boost economic growth
and welfare.
The challenge of euro adoption.
24
Nowadays, we can identify four main challenges of euro adoption.
Main challenges of being a part of the euro area:
Real and nominal convergence
Structural competitiveness
Structural asymmetry
Adjustment mechanisms
The challenge of euro adoption.
25
The first challenge is related to the convergence process
Main challenges of being a part of the euro area:
Real and nominal convergence
Structural competitiveness
Structural asymmetry
Adjustment mechanisms
The challenge of euro adoption.
26
Since real convergence is usually accompanied by price
convergence (i.e. real exchange rate appreciation)…
130
130
GDP per capita (PPS)
120
120
110
110
100
100
90
90
80
80
70
70
60
60
Price levels (PPS)
50
50
LV PL EE PT EL* SK SI CY MT ES IT FR FI BE DE IE NL AT
PL LV SK EE MT SI PT EL CY ES IT DE IE NL AT FR BE LU FI
Source: Eurostat.
The challenge of euro adoption.
… and natural interest rates in Poland are higher than in the euro
area, the level of interest rates set by the ECB might be too low …
Impossible trinity for converging economies
in a monetary union:
■
price convergence (RER appreciation),
■
real convergence (higher natural interest rate),
■
monetary union (the same level of nominal
interest rates and fixed exchange rate).
The common monetary policy will probably
be too loose for Poland.
27
The challenge of euro adoption.
28
…which may result in macroeconomic imbalances, especially in
the form of real estate bubble.
The experience of Spain and Ireland:
■
■
■
Nominal house prices (1999=100)
the major risk associated with excessively
low interest rates is that of a credit-driven
bubble in the real estate sector,
260
the decline in interest rates in Spain and
Ireland following their joining the euro area
was one of the factors underlying the buildup of property bubbles,
200
in both cases, the adjustments after the
bubbles had burst have been very painful,
Boom
140
Bust
Conclusion:
premature euro adoption might lead to
strong economic imbalances.
80
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
DE
IE
Source: Eurostat.
ES
The challenge of euro adoption.
Real and nominal convergence: the challenge.
The level of interest rates set by the ECB will be too low to meet the
needs of the Polish economy. This creates the risk of rising macroeconomic
imbalances in the form of a real estate bubble, excessive appreciation of the
real exchange rate and the deficit on the current account .
29
The challenge of euro adoption.
30
The second challenge is related to the structural competitiveness.
Main challenges of being a part of the euro area:
Real and nominal convergence
Structural competitiveness
Structural asymmetry
Adjustment mechanisms
The challenge of euro adoption.
31
Even though Poland's share in world trade has increased for the
last two decades…
120
Share of exports of goods and services in
the worlds’ trade (1999=100, UE 15)
Share of exports of goods and services in
the worlds’ trade (1999=100, UE 10)
300
260
100
220
180
80
140
100
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
60
1999
60
DE
FR
IT
ES
NL
PL
HU
CZ
SK
SL
AT
FI
PT
SE
UK
RO
BG
EE
LV
LT
Source: Eurostat.
The challenge of euro adoption.
32
…it is mostly price-cost competitive and not structurally
competitive…
The level of technological complexity of exports (2012)
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
IE
NE
BE
High
technology
Wysokie technologie
FR
GR
EA
DE
Medium
technology
Średnie technologie
Source: UNCTAD.
ES
FI
AT
PL
Low
technology
Niskie technologie
IT
PT
The challenge of euro adoption.
33
…which results from moderate level of innovation in Poland.
Innovation Union Scoreboard
0,8
0,7
0,6
0,5
0,4
0,3
0,2
0,1
0,0
BG
LV
RO
PL
LT
Modest
innovators
MT
skromni innowatorzy
SK
HU
EL
PT
ES
CZ
Moderate
innovators
IT
umiarkowani innowatorzy
CY
EE
SI
EU
FR
AT
IE
Innovation
naśladowcy
innowacji
Source: European Commission.
followers
UK
BE
NL
LU
FI
DE
DK
Innovation
liderzy innowacji
leaders
SE
The challenge of euro adoption.
Structural competitiveness: the challenge.
The basic opportunity from the accession to the euro zone is the prospect of
accelerating the pace of real convergence (relative growth of wages). This will
result also in the drop of the cost-price competitiveness. To take advantage
of the opportunity of faster economic growth and avoid external
imbalance Poland should improve its structural competitiveness.
34
The challenge of euro adoption.
35
The third challenge is the structural asymetry.
Main challenges of being a part of the euro area:
Real and nominal convergence
Structural competitiveness
Structural asymmetry
Adjustment mechanisms
The challenge of euro adoption.
36
There are two main structural asymmetries (Poland vs euro area),
which might pose a challenge after the euro adoption:
Before the crisis:
country-specific shocks
seen as the main cause of
potential cyclical divergence
After the crisis:
asymmetric response to
common shocks might also
be a non-trivial source of
cyclical divergence
Challenge:
Will the Polish economy react
differently to common shocks
after adopting the euro?
The challenge of euro adoption.
37
First, high duality of the labour market may lead to a significantly
higher reaction of employment to business cycle fluctuations…
The share of temporary employees in total employment (2013)
40
35
30
25
20
15
10
5
0
Source: Eurostat.
The challenge of euro adoption.
38
…second, the underdevelopment of the private rental market
might lead to excessive responsiveness of house prices,
construction activity, GDP and inflation to financing conditions.
Ownership structure of real estates in Poland and euro area (2012)
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
DE
AT
FR
EA
NL
IE
LU
BE
CY
FI
IT
PT
GR
SI
ES
LV
MT
EE
Ownersposiadający
with mortgages
Właściciel
kredyt hipoteczny
Właściciel
posiadający
kredytu hipotecznego
Ownersniewithout
mortgages
Tenants, market
Wyjnajmujący,
po cenieprice
rynkowej
Wynajmujący,
po cenie
niższej prices
od rynkowej
Tenants, below
market
Source: Eurostat.
PL
SK
The challenge of euro adoption.
Structural asymmetry: the challenge.
In the light of high duality of the labor market and underdevelopment of
the private rental market in comparison with the euro area countries, we can
expect excessive response of employment, activity in the construction sector
and GDP after the euro adoption. This increases the likelihood of business
cycles divergence .
39
The challenge of euro adoption.
40
The fourth challenge relates to the effectiveness of adjustment
mechanisms
Main challenges of being a part of the euro area:
Real and nominal convergence
Structural competitiveness
Structural asymmetry
Adjustment mechanisms
The challenge of euro adoption.
41
There are two main channels through which an economy can
adjust to cyclical divergence: fiscal policy and market
mechanisms.
Fiscal policy
Shocks
leading to
cyclical
divergence
Restoring
economic
equilibrium
Market
mechanisms
The challenge of euro adoption.
42
So far, despite domestic and European fiscal rules, the room for
effective countercyclical fiscal policy in Poland is limited.
Polish public debt (%GDP)
Public finance structural balance (%GDP)
70
0
60
-1
50
-2
-3
40
-4
30
Państwowy
dług
Polish actual public debt
publiczny
Poziom
Desiredpożądany
level
20
10
-5
Structural
balance
Saldo
strukturalne
-6
Desired level
Poziom
pożądany (MTO)
-7
Limit
konstytucyjny
Limits
set by the constitution
0
-8
2000
2003
2006
2009
2012
2000
Source: Polish Ministry of Finance.
2003
2006
2009
2012
The challenge of euro adoption.
43
Market reaction mechanisms are determined by the effectiveness
of the labour and product markets.
3 channels of firms’ adjustments in response to demand shocks
■ Important role of
intensive adjustment
channel in case of
temporary shocks
I. Price adjustment
• change in margins and profits
• change of wages
II. Intensitve adjustment
■ Important role of
extensive adjustment
channel in case of
permanent shocks
• change in working hours per employee
• change in the level of capital utilization
III. Extensive adjustment
• Dismissal/hiring of employees
• Closure/opening of businesses
The challenge of euro adoption.
44
Market adjustment mechnisms are restrained by product market
rigidities …
Product Market Regulation 2013
Number of regulated professions
SI
PL
GR
SK
PL
SI
ES
PT
IE
AT
FRA
FR
BE
ES
EU
IT
EE
GR
SK
DE
PT
NL
FI
IE
IT
BE
DE
FI
AT
EE
NL
0,6
1,0
Source: OECD.
1,4
1,8
0
100
200
300
Source: European Commission.
400
The challenge of euro adoption.
45
…especially banckruptcy procedures …
Indicators on bankruptcy proceedings in Poland and in the euro area countries
20%
4
15%
3
10%
2
5%
1
0%
0
PL
DE
FR
ES
stosunek
liczby
upadłości
do
liczby
przedsiębiorstw
zaprzestających
działalności
w
latach
2009-2011
(L)
the ratio of the number of bankruptcies to the number of companies
closing
business
średni
czas postępowania
w latach w 2013in
r. (P)
average
duration of proceedings
2013
(RHS)
Source: Creditreform (2014), Eurostat, Doing Business.
IT
2009-2011 (LHS)
The challenge of euro adoption.
…while the high flexibility of the labor market supports market
adjustment mechanisms.
The characteristics of the Polish labor market:
■
high wage flexibility,
■
high elasticity in determining the level of employment (e.g. due to the possibility of using civil
contracts and temporary workers),
■
low efficiency of matching process associated with lower expenditures on active labor market
policies,
■
low share of part-time workers.
Market adjustment mechanisms occurring through changes in the labor market in
most cases should be effective (only the low efficiency of the matching process might
be worrisome).
However, the rigidity of the labor market in the euro area combined with high
flexibility of the labor market in Poland may cause an increase in the amplitude of the
fluctuations in economic activity due to the asymmetry of the transmission of
common shocks.
46
The challenge of euro adoption.
Adjustment mechanisms: 2 challenges.
1. Fiscal space necessary to pursue counter-cyclical fiscal policy is limited.
2. Product market rigidities limit the effectiveness of market-based
adjustments.
47
48
Conclusions
Conclusions
49
Euro adoption is a chance to boost economic growth and welfare.
The condition is that economic fundamentals of the Polish
economy are strong.
■ EU accession helped to transform the Polish
economy and increase living standards.
■ Nowadays, Poland is highly integrated with the EU.
■ Poland was the best performer among EU countries
during the crisis.
■ Adopting the euro is the most important challenge
for the future.
■ The experience of selected EA countries suggests
that premature adoption of euro might result in
macroeconomic imbalances.
PLN
EUR

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