estonia, latvia, lithuania - who has done the best?! kaspar oja
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Kaspar Oja ettekanne noorsotside baltikumi suveakadeemiast 2010.TRANSCRIPT
Estonia, Latvia, Lithuania - who has done the best?!
Kaspar Oja
GDP and domestic demand – recovery is about to begin
100
120
140
160
180
200
220
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Estonia Latvia Lithuania
100
110
120
130
140
150
160
170
180
190
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Estonia Latvia Lithuania
-20%
-15%
-10%
-5%
0%
5%
10%
15%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Estonia Latvia Lithuania
-40%
-30%
-20%
-10%
0%
10%
20%
30%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Estonia Latvia Lithuania
GDP, volume 2000=100
Domestic demand, volume 2000=100
GDP, yoy growth
Domestic demand, yoy growth
GDP and domestic demand 2
• Economists seem to belive that Estonia will have the fastest recovery
• …however Lithuanian GDP fell less during the crises
• Growth of domestic demand is going to be sluggish due to high unemployment in all three countries, growth has to come from the exporting sector
Sharp decline in consumption due to low savings
-30 -20 -10 0 10 20
EstoniaLatvia
LithuaniaUnited Kingdom
DenmarkSlovakiaFinland
PortugalCzech Republic
NorwaySwedenHungary
SpainNetherlands
AustriaFrance
ItalyBelgium
GermanySlovenia
Decrease in consumption of households (2009)
Household saving rate 2004-2007
Investments as % of GDP
05
1015202530354045
2000
Q1
2000
Q3
2001
Q1
2001
Q3
2002
Q1
2002
Q3
2003
Q1
2003
Q3
2004
Q1
2004
Q3
2005
Q1
2005
Q3
2006
Q1
2006
Q3
2007
Q1
2007
Q3
2008
Q1
2008
Q3
2009
Q1
2009
Q3
2010
Q1
Estonia Latvia Lithuania
Industrial production shows good growth
• Estonia had the sharpest decline in industrial production during the crises
• …however the recovery is also the fastest
405060708090
100110120130140
2000
M01
2000
M06
2000
M11
2001
M04
2001
M09
2002
M02
2002
M07
2002
M12
2003
M05
2003
M10
2004
M03
2004
M08
2005
M01
2005
M06
2005
M11
2006
M04
2006
M09
2007
M02
2007
M07
2007
M12
2008
M05
2008
M10
2009
M03
2009
M08
2010
M01
Estonia Latvia Lithuania
-40%
-30%
-20%
-10%
0%
10%
20%
30%
2005
M01
2005
M04
2005
M07
2005
M10
2006
M01
2006
M04
2006
M07
2006
M10
2007
M01
2007
M04
2007
M07
2007
M10
2008
M01
2008
M04
2008
M07
2008
M10
2009
M01
2009
M04
2009
M07
2009
M10
2010
M01
2010
M04
Estonia Latvia Lithuania
Export volumes are growing in all three countries
• Entrepreneurs who closed down their factories in 2008 are returning
• Crises left production capacities idle - it is easy to increase production
• Time is good for new FDIs• Some Scandinavian
companies could move their produciton to the Baltics due to relatively lower labour costs
00,20,40,60,8
11,21,41,6
Jan.
200
0Ju
n. 2
000
Nov
. 200
0A
pr. 2
001
Sep.
200
1Fe
b. 2
002
Jul.
2002
Dec
. 200
2M
ay. 2
003
Oct
. 200
3M
ar. 2
004
Aug
. 200
4Ja
n. 2
005
Jun.
200
5N
ov. 2
005
Apr
. 200
6Se
p. 2
006
Feb.
200
7Ju
l. 20
07D
ec. 2
007
May
. 200
8O
ct. 2
008
Mar
. 200
9A
ug. 2
009
Jan.
201
0
ESTONIA LITHUANIA LATVIA
Exports of goods, value, index 2007=1
Growth of exports is positive in all three countries
Exports (goods and services), volume, yoy growth
External balance (current account + capital account)
-30%-25%-20%-15%-10%
-5%0%5%
10%15%20%
2000
Q1
2000
Q3
2001
Q1
2001
Q3
2002
Q1
2002
Q3
2003
Q1
2003
Q3
2004
Q1
2004
Q3
2005
Q1
2005
Q3
2006
Q1
2006
Q3
2007
Q1
2007
Q3
2008
Q1
2008
Q3
2009
Q1
2009
Q3
2010
Q1
Estonia Latvia Lithuania
LABOUR MARKET AND COMPETITIVENESS
HICP
-10%
-5%
0%
5%
10%
15%
20%
2001
M01
2001
M06
2001
M11
2002
M04
2002
M09
2003
M02
2003
M07
2003
M12
2004
M05
2004
M10
2005
M03
2005
M08
2006
M01
2006
M06
2006
M11
2007
M04
2007
M09
2008
M02
2008
M07
2008
M12
2009
M05
2009
M10
2010
M03
Estonia Latvia Lithuania
60708090
100110120130140150
2000
M01
2000
M07
2001
M01
2001
M07
2002
M01
2002
M07
2003
M01
2003
M07
2004
M01
2004
M07
2005
M01
2005
M07
2006
M01
2006
M07
2007
M01
2007
M07
2008
M01
2008
M07
2009
M01
2009
M07
2010
M01
Estonia Latvia Lithuania
• Prices grew at tremendous pace before the crises
• We saw that deflation is possible in 2009
• What is happening now?
Price growth at the moment
• Price growth is dependant on external factors energy and food
• Lack of internal pressures should keep price growth low in the coming years– high unemployment - weak pressures for wage
growth– idle production capacities - production potential is
higher than demand for products
Export deflator
8090
100110120130140150160170
2000
Q1
2000
Q3
2001
Q1
2001
Q3
2002
Q1
2002
Q3
2003
Q1
2003
Q3
2004
Q1
2004
Q3
2005
Q1
2005
Q3
2006
Q1
2006
Q3
2007
Q1
2007
Q3
2008
Q1
2008
Q3
2009
Q1
2009
Q3
2010
Q1
Estonia Latvia Lithuania
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
2001
Q1
2001
Q3
2002
Q1
2002
Q3
2003
Q1
2003
Q3
2004
Q1
2004
Q3
2005
Q1
2005
Q3
2006
Q1
2006
Q3
2007
Q1
2007
Q3
2008
Q1
2008
Q3
2009
Q1
2009
Q3
2010
Q1
Estonia Latvia Lithuania
• Fast growth of prices means loss of competitiveness for producers
Flexibility in labour markets - contributions to compensation of employees
-30%
-20%
-10%
0%
10%
20%
30%
40%
Hours Employment Other Total
-40%-30%-20%-10%
0%10%20%30%40%50%
Hours Employment Other Total
-30%
-20%
-10%
0%
10%
20%
30%
Hours Employment Other Total
Estonia
Latvia
Lithuania
Unemployment will remain high in the coming years
0
5
10
15
20
25
Estonia Latvia Lithuania
Youth unemployment could harm future potential
05
1015202530354045
Estonia Latvia Lithuania
One of several explanations for fast growth of unemployment
• Unemployment depends on flows to and from employment
• During the crises the number of people leaving a job did not increase substantially
• The number of people getting a new job decreased• If there aren’t many vacancies, people won’t leave
voluntarily and some firms start to fire• Loosing rigidities that hamper hiring, decreases firing• Idea from: Gilles Saint-Paul, The High Unemployment
Trap, 1995
Although it is hard to find a job people seem to have hope as activity rates remain high
54555657585960616263
Estonia Latvia Lithuania
WHAT WAS DONE DIFFERENTLY BEFORE THE CRISES?
Estonian fiscal policy has been much different than in Latvia and Lithuania
-10,0
-8,0
-6,0
-4,0
-2,0
0,0
2,0
4,0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Estonia Latvia Lithuania
0
5
10
15
20
25
30
35
40
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Estonia Latvia Lithuania
Budget surplus as % of GDP
Government debt as % of GDP
Government expenditures 2005=1
0
0,5
1
1,5
2
2,5
2000
Q1
2000
Q3
2001
Q1
2001
Q3
2002
Q1
2002
Q3
2003
Q1
2003
Q3
2004
Q1
2004
Q3
2005
Q1
2005
Q3
2006
Q1
2006
Q3
2007
Q1
2007
Q3
2008
Q1
2008
Q3
2009
Q1
2009
Q3
2010
Q1
Estonia Latvia Lithuania
Government expenditures yoy growth
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
2001
Q1
2001
Q3
2002
Q1
2002
Q3
2003
Q1
2003
Q3
2004
Q1
2004
Q3
2005
Q1
2005
Q3
2006
Q1
2006
Q3
2007
Q1
2007
Q3
2008
Q1
2008
Q3
2009
Q1
2009
Q3
2010
Q1
Estonia Latvia Lithuania
Two opposing views on government expenditure
• Keynsian: • we can’t earn more
than we spend; • aggregate supply
depends on aggregate demand;
• therefore cutting expenditures will lead to lower demand and production
• Barro-Ricardo equivalence theorem:
• it does not matter whether a government finances its spending with debt or a tax increase;
• to pay back loans taken today, it has to raise taxes tomorrow
Concluding remarks• Crises was at least partly a result of the boom– low level of savings– fast growth of prices, possibly loss of competitiveness
• Economies fell around 15% in 2009• Unemployment was around 20% in 2010Q1– not likely to decrease fast
• Budgets are still in deficit• Government debt is growing fast in Latvia and
Lithuania
Future?
• What should be done to avoid future crises?• What should be done to avoid future booms?
Thank You!