Baltic economies: more pain in the past, more gain in the future?
Upcoming SlideShare
Loading in...5
×
 

Baltic economies: more pain in the past, more gain in the future?

on

  • 936 views

Presentation by Dr. Raul Eamets, Professor of Macroeconomics, Head of the Institute of Economics, University of Tartu (Estonia) at the Bank of Latvia conference "Economic Adjustment under Sovereign ...

Presentation by Dr. Raul Eamets, Professor of Macroeconomics, Head of the Institute of Economics, University of Tartu (Estonia) at the Bank of Latvia conference "Economic Adjustment under Sovereign Debt Crisis: Can Experience of the Baltics Be Applied to Others?"
Riga, November 2, 2012.

Statistics

Views

Total Views
936
Views on SlideShare
781
Embed Views
155

Actions

Likes
0
Downloads
0
Comments
0

2 Embeds 155

http://www.macroeconomics.lv 84
http://www.makroekonomika.lv 71

Accessibility

Categories

Upload Details

Uploaded via as Adobe PDF

Usage Rights

© All Rights Reserved

Report content

Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
  • Full Name Full Name Comment goes here.
    Are you sure you want to
    Your message goes here
    Processing…
Post Comment
Edit your comment

Baltic economies: more pain in the past, more gain in the future? Baltic economies: more pain in the past, more gain in the future? Presentation Transcript

  • Baltic economies: more pain inthe past, more gain in the future? Raul Eamets University of Tartu "Economic Adjustment under Sovereign Debt Crisis: Can Experience of the Baltics Be Applied to Others?" Bank of Latvia 02.11.2012.
  • Source: Morten Hansen & Raul Eamets
  • Our GDP is back in 2005 200=100190 EU27180 EA DK170 DE160 EE IE150 LV LT140 NL130 PT SK120 FI110 SE UK100 US JP90 2000 2002 2004 2006 2008
  • Estonia: two restrictive supplementary budgets in 2009• 10,6% cut in operational expenditure of the central government – including the wage bill by 9,6% and administrative costs by 12%.• Stricter limits on new borrowing by municipalities.• Suspending contributions to the second pillar pension system for until the end of 2010;• increase in value added tax (from 18% to 20%)• twice higher taxes on natural gas• considerable increases in different environmental duties
  • Fiscal Policy in Estonia Budget Budget deficit/surplus surplus/deficit % of GDP% of GDP4,03,02,01,00,0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011-1,0-2,0-3,0-4,0
  • What would have happened without action… "If nothing had been done" scenario public balance % of GDP 4,0 2,0 0,0 2002 2003 2004 2005 2006 2007 2008 2009* 2010* -2,0 Maastricht criterion -4,0 -6,0 -8,0 -10,0 -12,0 -14,0
  • Labour market flexibility…How quickly labour market adjusts to macroeconomic changesIn Baltics:Wage reductionWorking hours declinedEmployment declined
  • Employment changes: construction was most affected
  • Wages are flexible• Union density and collective bargaining coverage is very low• Latvia - 20% salary cuts in public institutions• Estonia – 9,6% salary cuts in public institutions• Estonia - The total salary income of Estonian population decreased around 10 billion EEK which was around 4% of GDP
  • Table 11. Annual wage changes in the Baltic States by economic sector Industry Estonia Latvia Lithuania 2008 2009 2008 2009 2008 2009 Total economy 13.8% -4.6% 20.6% -4.0% 19% -4% Primary 17.7% -7.4% 17.2% -4.6% 23% -8% Industry 11.5% -3.5% 13.4% -4.0% 18% -4% Manufacturing 10.8% -3.9% 19.8% -2.1% 18% -4% Energy 17.0% 6.8% 5.6% -5.0% 16% 0% Construction 8.3% -13.4% 19.0% -1.1% 10% -21% Business services 12.3% -4.2% 21.0% -1.8% 19% -5% Public services 17.4% -4.5% 20.2% -9.7% 22% -11% Public administration 15.7% -7.6% 16.1% -18.0% 23% -10% Education 20.4% -2.5% 23.4% -9.9% 26% 8%Source: national statistical offices of Estonia, Latvia, Lithuania
  • Policy responces Baltics versus EU 15Baltic countries EU15Government expenditures ↓ Government expenditures ↑(NL, SE, DE)Government investnments ↓ Government investments ↑ (AT, DE, DK, NL, PT, SE)Direct taxes ↑ Direct taxes ↓ (AT, DE, DK, ES. IE, SE, UK)Excise duties↑ Excise duties↑ (FI, GR, NL, IE, UK)Public pensions ↓ LAT Social welfare support ↑ (BE, IE, GR)Business aid ↑ EST Business aid ↑ (ES, DE, FR. GR, NL, UK, PT)
  • Baltic countries: back in growth trackSource: The Economist, 14.07.2011
  • To get budget back to balance - is it mission impossible?Lessons from Estonia1. Very strong political commitment – in Estonian case it was EURO2. Small economy ?3. Strong Government4. Weak trade unions  no public unrest5. Flexible labour market
  • To sum upLimited policy instruments to stabilise economyLabour market should be "buffer" for macroeconomic adjustmentEmployment  working hours wages Socially costly  unemployment  Increasing competitiveness and "forced" restructuring, low loan burden for future generations
  • Thank you!