1 different crisis solutions and common future challenges for the baltic economies jekaterina rojaka...
Post on 31-Dec-2015
228 Views
Preview:
TRANSCRIPT
1
Different crisis solutions and common future challenges for the Baltic Economies
Jekaterina Rojaka
DNB Chief Economist | Baltics
November 24, 2011
Economic Crossroads: From Recovery to Sustainable Growth in the Baltics and EU
2
Last decade the Baltic economies grew at a solid pace
Real GDP, 2000 = 100%
100
110
120
130
140
150
160
170
180
190
2000 2002 2004 2006 2008 2010
Lithuania
ES-27
Estonia
Latvia
GDP per capita, PPS, EU-27 = 100%
10
20
30
40
50
60
70
80
90
100
2000 2002 2004 2006 2008 2010
Source: Eurostat
3
The Baltics are again among the EU leaders according to economic growth rates
Real GDP, annual change, %8.9
6.25.5
4.6 4.2
2.6 2.6 2.2 2.1 2.0 1.9 1.91.3
0.8
-0.8
-7.7
0.80.9
3.9 3.8 3.4
Est
on
ia
Lith
ua
nia
Sw
ed
en
La
tvia
Po
lan
d
Ge
rma
ny
Fin
lan
d
Slo
vaki
a
Cze
ch R
ep
.
Be
lgiu
m
Ne
the
rla
nd
s
Fra
nce
EU
-27
Hu
ng
ary
Bu
lga
ria
Ire
lan
d
Italy
UK
Sp
ain
Po
rtu
ga
l
Gre
ece
2011 IH 2010
Source: Eurostat
4
While EU old-timers are out of steamReal GDP annual change in 2011, %
2.4
1.6 1.4
5.0
3.02.5 2.4
1.71.4
9.5
8.47.9
3.5
5.6 5.7 5.96.5 6.6
4.14.4
4.1
3.4
4.8
I II III I II III I II III I II III I II III I II III I II III I II III
Euro area Germany France Estonia Latvia Lithuania Poland Russia
Source : Eurostat, Latvi’as statistics, Russia’s national statistics
5
Manufacturing indexes change direction
Šaltinis: Eurostat
60
70
80
90
100
110
120
2007
.01
2007
.05
2007
.09
2008
.01
2008
.05
2008
.09
2009
.01
2009
.05
2009
.09
2010
.01
2010
.05
2010
.09
2011
.01
2011
.05
2011
.09
Estonia
Latvia
Lithuania
Manufacturing, volume index of production, sa, 2007.01=100
80
90
100
110
20
07
.01
20
07
.05
20
07
.09
20
08
.01
20
08
.05
20
08
.09
20
09
.01
20
09
.05
20
09
.09
20
10
.01
20
10
.05
20
10
.09
20
11
.01
20
11
.05
20
11
.09
Euro area
Germany
France
Manufacturing, volume index of production, sa, 2007.01=100
6
Entering an outlook downgrading cycle again…
-6
-4
-2
0
2
4
6
8
20
11
20
12
20
11
20
12
20
11
20
12
20
11
20
12
20
11
20
12
20
11
20
12
20
11
20
12
20
11
20
12
GermanyFrance Italy Greece Euroarea
LithuaniaLatvia Estonia
Autumn forecast
Spring forecast
European Commission real GDP forecasts, %
Source: European Commission, OECD, World Bank
OECD real GDP forecasts, %
2.6
3.1
2.0 2.0
1.5 1.5 1.6
0.3
2011 2012 2011 2012
US Euro area
Spring forecast
Autumn forecast
World bank real GDP growth forecast
2009 2010e 2011f 2012f 2013f
High income -3.4 2.7 2.2 2.7 2.6Euro Area -4.1 1.7 1.7 1.8 1.9United States -2.6 2.8 2.6 2.9 2.7Developing countries 1.9 7.3 6.3 6.2 6.3China 9.1 10.3 9.3 8.7 8.8Russia -7.8 4.0 4.4 4.0 4.1India 9.1 8.8 8.0 8.4 8.5
7
Stock market faces high volatilityStock indices (2008.01 = 1)
0.0
0.2
0.4
0.6
0.8
1.0
1.2
20
08
.01
20
08
.03
20
08
.05
20
08
.07
20
08
.09
20
08
.11
20
09
.01
20
09
.03
20
09
.05
20
09
.07
20
09
.09
20
09
.11
20
10
.01
20
10
.03
20
10
.05
20
10
.07
20
10
.09
20
10
.11
20
11
.01
20
11
.03
20
11
.05
20
11
.07
20
11
.09
20
11
.11
Global: MSCIEurope: Stoxx 600Russia: RTSUS: S&P 500
Source: Eurostat
8
Overall confidence drops
Source: Eurostat, Bloomberg
Economic sentiments indices
60
70
80
90
100
110
120
20
08
.01
20
08
.04
20
08
.07
20
08
.10
20
09
.01
20
09
.04
20
09
.07
20
09
.10
20
10
.01
20
10
.04
20
10
.07
20
10
.10
20
11
.01
20
11
.04
20
11
.07
20
11
.10
Euro area
Germany
France
Purchasing manager index, industry
30
35
40
45
50
55
60
65
2008
.01
2008
.04
2008
.07
2008
.10
2009
.01
2009
.04
2009
.07
2009
.10
2010
.01
2010
.04
2010
.07
2010
.10
2011
.01
2011
.04
2011
.07
2011
.10
Euro area
US
9
Germany’s confidence is close to 2008 level
Šaltinis: Reuters Ecowin
Indicator of current situation
-100
-80
-60
-40
-20
0
20
40
60
80
100
20
08
.01
20
08
.04
20
08
.07
20
08
.10
20
09
.01
20
09
.04
20
09
.07
20
09
.10
20
10
.01
20
10
.04
20
10
.07
20
10
.10
20
11
.01
20
11
.04
20
11
.07
20
11
.10
Euro area
Germany
-80
-60
-40
-20
0
20
40
60
80
20
08
.01
20
08
.05
20
08
.09
20
09
.01
20
09
.05
20
09
.09
20
10
.01
20
10
.05
20
10
.09
20
11
.01
20
11
.05
20
11
.09
Euro area
Germany
ZEW, Indicator of economic sentiment
10
Economic sentiments - base for short term forecasts…
Source: Capital Economics
11
And prospects are not bright
Lithuania's real GDP and ESI
-20
-15
-10
-5
0
5
10
15
20
06
IQ
20
06
2Q
20
06
3Q
20
06
4Q
20
07
IQ
20
07
2Q
20
07
3Q
20
07
4Q
20
08
IQ
20
08
2Q
20
08
3Q
20
08
4Q
20
09
IQ
20
09
2Q
20
09
3Q
20
09
4Q
20
10
IQ
20
10
2Q
20
10
3Q
20
10
4Q
20
11
IQ
20
11
2Q
20
11
3Q
20
11
4Q
50
60
70
80
90
100
110
120
Real GDP, annual change, % (lhs)
ESI, 2m FW (rhs)
Estonia's real GDP and ESI
-20
-15
-10
-5
0
5
10
15
2006
IQ20
06 2
Q20
06 3
Q20
06 4
Q20
07 IQ
2007
2Q
2007
3Q
2007
4Q
2008
IQ20
08 2
Q20
08 3
Q20
08 4
Q20
09 IQ
2009
2Q
2009
3Q
2009
4Q
2010
IQ20
10 2
Q20
10 3
Q20
10 4
Q20
11 IQ
2011
2Q
2011
3Q
2011
4Q
50
60
70
80
90
100
110
120
Real GDP, annual change, % (lhs)
ESI, 2m FW (rhs)
Source: European Commission, Eurostat, DNB
12
Where roots of pessimism are coming from?
What to expect?
13
Fiscal prudence in EU deteriorated, Latvia and Lithuania stand among average performance
General government deficit, % of GDP
-31.3
-10.6-10.3-10.1 -9.8-8.3 -7.8 -7.7 -7.1 -7.0 -6.9 -6.6 -5.8 -5.1 -4.8 -4.6 -4.4 -4.2 -4.1 -4.3
-3.1 -2.6 -2.5
0.2 0.2
10.6
Ire
lan
d
Gre
ece UK
Po
rtu
ga
l
Sp
ain
La
tvia
Po
lan
d
Slo
vaki
a
Fra
nce
Lith
ua
nia
Ro
ma
nia
EU
-27
Slo
ven
ia
Ne
the
rla
nd
s
Cze
ch R
.
Italy
Au
stri
a
Hu
ng
ary
Be
lgiu
m
Ge
rma
ny
Bu
lga
ria
De
nm
ark
Fin
lan
d
Sw
ed
en
Est
on
ia
No
rwa
y
2010 2011 F
Source: Eurostat, European Commission
14
General government debt in most of EU swelled in several years
General government debt dynamics in the Baltics, % GDP
23.619.3 16.8 15.5
29.4
38.0 38.6
12.4 15.09.0
19.8
36.744.7 44.7
5.1 5.0 3.7 4.5 7.2 6.7 6.4
2000 2004 2007 2008 2009 2010 20111H
2000 2004 2007 2008 2009 2010 20111H
2000 2004 2007 2008 2009 2010 20111H
Lithuania Latvia Estonia
Source: Eurostat
General government debt, % of GDP
107 103
25
68 66 65 6444
3645
9
5240
23 17 13 174
145
118
95 9385 83 82 80
61 5545 44 40 39 38 31
167
Gre
ece
Italy
Irel
and
Por
tuga
l
Eur
oar
ea
Ger
man
y
Fra
nce
UK
Spa
in
Pol
and
Latv
ia
Nor
way
Sw
eden
Slo
veni
a
Lith
uani
a
Rom
ania
Bul
garia
Est
onia
2007 2010
15
Financial markets full of fears
Source: Reuters EcoWin
CDS's 5 year, bp
0
200
400
600
800
1000
1200
1400
2008
-10
2008
-12
2009
-02
2009
-04
2009
-06
2009
-08
2009
-10
2009
-12
2010
-02
2010
-04
2010
-06
2010
-08
2010
-10
2010
-12
2011
-02
2011
-04
2011
-06
2011
-08
2011
-10
0
200
400
600
800
1000
1200
1400
Latvia Lithuania Estonia Spain
Portugal Ireland Italy Germany
16
Debt service becomes a heavy burden for some countries
Debt service, % of GDP
2.7
0.7
0.3 0.2
2.7
1.8
1.4
0.10
1
2
3
4
5
6
Gre
ece
Italy
Hu
ng
ary
Be
lgiu
m
Ire
lan
d
Po
rtu
ga
l
UK
EU
-27
Po
lan
d
Au
stri
a
Ge
rma
ny
Fra
nce
De
nm
ark
Sp
ain
Ne
the
rla
nd
s
Lith
ua
nia
Ro
ma
nia
Slo
ven
ia
Cze
ch R
.
La
tvia
Fin
lan
d
Slo
vaki
a
Sw
ed
en
Bu
lga
ria
Est
on
ia
2007 2010
Source: Eurostat
17
Possible solutions of the EU crisis
Expansive monetary policy
• Possible QE starting dates
• Inflation• Redistributing
income
Fiscal tightening
• Strict fiscal policy
• Deflation• Stagnation /
prolonged recession
• Discontent electorate
High probability
Distributing debt burden
• Distributing debt amongst euro zone members
• Recession• Deflation• Anemic growth /
stagnation
Break down of euro zone
• No political consensus
• Flight from EZ• Going bankrupt• Restoring national
currencies• Improving
competitiveness
Low probability
18
Eurobond – panacea, or placebo?
• Put all national bonds in one melting pot, i.e. all euro-zone government debt issued and fully guaranteed by all 17 member states.
• Euro bonds cover up to a debt ceiling (perhaps 60% of GDP), and national bonds – above that.
• National governments offered euro bonds up to a threshold, with limited guarantee from other euro-zone governments.c
• Timing?• Scope?• Effect?
Source: Bloombergm Capital Economics, DNB
19
Solutions of euro crisis to influence economic development in the Baltics
Scenario 1 Scenario 2
Impact on the Baltics Quantitative easing Budget cuts
Inflation
Output, exports
Gross capital formation
Business confidence
Loan portfolio Not to increase or
General gov. debt Unchanged or to increase
Interest expense on debt Relative increase
Unemployment rate Gradual decrease To remain high
Real income , Savings to melt Unchanged
GDP growth Stronger than EU’s average
Stagnation or recession
20
Significant correlation between the Baltic and EU exports
Source: Eurostat
Exports of goods and services, volumes, 2005 = 100
0
20
40
60
80
100
120
140
160
180
200
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Lithuania
Estonia
Estonia
EU-27
21
Global foreign trade growth has been put on haltWorld export volumes, goods, USD mn
0
200000
400000
600000
800000
1000000
1200000
1400000
1600000
2006
-01
2006
-07
2007
-01
2007
-07
2008
-01
2008
-07
2009
-01
2009
-07
2010
-01
2010
-07
2011
-01
2011
-07
0
200000
400000
600000
800000
1000000
1200000
1400000
1600000
World
China
EU
Source: WTO
22
In Lithuania and Latvia current transfers are substantial
Source: Eurostat
Currents transfers (balance) 2010, % of GDP
4.84.3
3.6
2.8
1.81.3
0.80.5 0.4 0.3 0.2 0.1
-0.2-0.6 -0.7
-0.9-0.7 -0.8
-1.0-1.4-1.4 -1.4
-1.7-1.5-1.8 -1.9 -1.9
-3
-2
-1
0
1
2
3
4
5
6
Lith
ua
nia
Bu
lga
ria
La
tvia
Ro
ma
nia
Est
on
ia
Po
rtu
ga
l
Po
lan
d
Ma
lta
Hu
ng
ary
Slo
ven
ia
Cze
ch R
.
Gre
ece
Cyp
rus
Slo
vaki
a
Sp
ain
Au
stri
a
Ire
lan
d
Fin
lan
d
Italy
Sw
ed
en
Fra
nce UK
Ge
rma
ny
Lu
xem
bo
urg
Be
lgiu
m
Ne
the
rla
nd
s
De
nm
ark
Government Other sectors Total
23
Lithuania’s and Latvia’s FDI indicators still petty
FDI per capita, 2010-end, EUR
2967127517
9227 91796924 6712
5254 47843924 3636 3174 2463
Ma
lta
Cyp
rus*
Cze
ch R
ep
.
Est
on
ia
Slo
vaki
a
Hu
ng
ary
Slo
ven
ia
Bu
lga
ria
Po
lan
d
La
tvia
Lith
ua
nia
Ro
ma
nia
*
*Gyventojų skaičius 2010 m. sausio 1 d.
Šaltinis: Eurostat
24
Unemployment melts down, while still high
Source: Eurostat
Unemployment rate, sa, eop, %
7.0 7.59.5 9.6 9.5
4.1
8.0
16.214.6
12.810.9
5.5
10.2
20.117.0 16.1
14.4
4.4
8.2
16.017.3
15.5 14.815.2
17.0
21.1 21.0 21.1
7.3
17.6
32.6
25.9
21.8
8.3
19.6
40.8
30.929.7
9.0
18.3
31.734.2
32.7
20
07
20
08
20
09
20
10
20
11
P1
20
07
20
08
20
09
20
10
20
11
P1
20
11
Q3
20
07
20
08
20
09
20
10
20
11
P1
20
11
Q3
20
07
20
08
20
09
20
10
20
11
P1
20
11
Q3
EU-27 Estonia Latvia Lithuania
Unemployment rateYouth unemployment
25
WARNING: Emigration emergencyCrude rate of net migration plus statistical adjustment*
-4.6-6.2
2.3
-2.1 -2.1
5.6
0.0 0.0 -0.11.4 0.8 1.1 1.7 1.1
2.7 3.1
-0.11.8 2.3 2.7 3.3 2.8 2.5
5.36.7
-0.4
5.9
13.2
-23.7
-7.5
-4.1 -3.5 -3.2
-0.3
-0.1 0.0 0.0 0.4 0.6 1.2 1.2 1.3 1.5 1.5 1.6 1.8 2.0 2.6 2.6 3.0 3.35.2 5.3 5.4
8.2
15.1
Lith
uan
ia
Ire
lan
d
Cyp
rus
La
tvia
Bu
lga
ria
Slo
ven
ia
Po
lan
d
Est
oni
a
Ro
ma
nia
Po
rtug
al
Slo
vaki
a
Fra
nce
Hu
ng
ary
Sp
ain
Cze
ch R
ep
.
Gre
ece
Ge
rma
ny
EU
-27
Ne
the
rla
nd
s
Fin
lan
d
UK
De
nm
ark
Au
stria
Italy
Sw
ede
n
Ma
lta
Be
lgiu
m
Lu
xem
bo
urg
2009 2010
*The ratio of the net migration during the year to the average population in that year. The crude rate of net migration is equal to the
difference between the crude rate of change and the crude rate of natural change
Source: Eurostat
26
Latvia and Estonia still highly leveraged
Šaltinis: Europos Centrinis Bankas, Eurostat
Loans to private sector in 2010, % of GDP
202428
34293231
2726
5857
4538
525049
5659
8170
8161
828584
13379
132
2023
211531283245
593236
4956
4346
565152
3359
5586
6967
8761
140138
RomaniaSlovakia
Czech R.Poland
LithuaniaHungaryBelgiumBulgariaSloveniaFinland
GermanyLatvia
ItalyFranceEstoniaAustria
Euro areaGreece
UKNetherlands
SwedenMalta
PortugalIrelandSpain
DenmarkLuxembourg
Cyprus
Households
Non-financial entities
27
Global competitivness index64
44
33
Sw
itze
rla
nd
Sin
ga
po
reS
we
de
nF
inla
nd
U.S
.G
erm
an
yN
eth
erl
an
ds
De
nm
ark
Jap
an
UK
Ho
ng
Ko
ng
Ca
na
da
Ta
iwa
nC
ata
rB
elg
ium
No
rwa
yS
au
di A
rab
iaF
ran
ceA
ust
ria
Au
stra
liaM
ala
ysia
Isra
el
Lu
xem
bo
urg
Ko
rea
Ne
w Z
ea
lan
dC
hin
aU
AE
Bru
ne
iIr
ela
nd
Ice
lan
dC
hile
Om
an
Est
on
iaK
uw
ait
Pu
ert
o R
ico
Sp
ain
Ba
hra
inC
zech
R.
Th
aila
nd
Tu
nis
iaP
ola
nd
Ba
rbd
osa
sIta
lyL
ithu
an
iaP
ort
ug
al
Ind
on
esi
aC
ypru
sH
un
ga
ryP
an
am
aS
ou
th A
fric
aM
alta
Sri
La
nka
Bra
zil
Ma
uri
tius
Aze
rba
ijan
Ind
iaS
love
nia
Me
xico
Tu
rke
yM
on
ten
eg
roC
ost
a R
ica
Ira
nU
rug
ua
yL
atv
iaV
ietn
am
2011-2012
2010-2011
There are still room for improvement in business climate and competitiveness ratings
Source: WEF, 2011-2012
28
Rising competitiveness and flexibility – key preconditions for sustainable long term growth in the Baltics
• Fostering competitiveness and innovation in production, work organization, production processes, marketing - the key to success.
• Currently, both business and governments should avoid overly ambitious projects with long term repayment
• Actively search for new markets.
28
29
Thank you for your attention!
DNB bank research products are available:
www.dnb.lt/publications
top related