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Recent Economic Developments in Latvia
 

Recent Economic Developments in Latvia

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This presentation summarises recent macroeconomic developments in Latvia and outlines a medium-term outlook for real GDP and inflation. Presentation reviews ongoing economic recovery, labour market ...

This presentation summarises recent macroeconomic developments in Latvia and outlines a medium-term outlook for real GDP and inflation. Presentation reviews ongoing economic recovery, labour market issues and includes analyses on core factors behind the path of inflation. The main focus of the presentation is on the issue of competitiveness of the Latvian economy pointing to the costs adjustment process and productivity gains, as well as presenting export performance, market shares and current account developments. Presentation also features slides on monetary and financial market developments.

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    Recent Economic Developments in Latvia Recent Economic Developments in Latvia Presentation Transcript

    • Economic Developments in Latvia December, 2012
    • Macroeconomic Overview
    • The strong economic growth in Latvia is supported by sound fundamentals Real GDP growth in the 1st Half of 2012 (% y-o-y) 6 5 4 3 2 1 0 -1 -2 -3 -4 LV LU RO BG CY LT EE DK IE BE GB HU CZ ES IT NL SK FI FR MT SI PL SE AT PT DESource: Eurostat
    • Economic growth remains strong; GDP growth in 2012 overall is expected to be around 5% Real GDP growth (%) 8 6.6 6.9 5.7 5.7 6 5.0 5.3* 4 3.1 3.6 2.8 2 0 -2 -4 -4.0 -6 -6.2 -8 Q1 2010 Q2 Q3 Q4 Q1 2011 Q2 Q3 Q4 Q1 2012 Q2 Q3Source: Central Statistical Bureau; * Flash estimate
    • Economic growth was led initially by exports, broadened to investment and private consumption Real GDP growth (y-o-y, %) and contribution to the growth (percentage points) 21 18 15 12 9 6.6 6.9 5.7 5.7 5.0 5.3* 6 3.1 2.8 3.6 3 0 -4.0 -3 -6.2 -6 -9-12-15-18 Q1 2010 Q2 Q3 Q4 Q1 2011 Q2 Q3 Q4 Q1 2012 Q2 Q3 Private consumption Public consumption GFCF Changes in inventories Exports Imports GDP, % yoySource: Central Statistical Bureau of Latvia; * - Flash estimate
    • GDP growth is broad based across sectors Real GDP growth (y-o-y, %) and sector contribution to the growth (percentage points) 8 6.6 6.9 5.7 5.7 5.3* 6 5.0 3.6 4 3.1 2.8 2 0 -2 -4 -6 -4.0 -8 -6.2 -10 Q1 2010 Q2 Q3 Q4 Q1 2011 Q2 Q3 Q4 Q1 2012 Q2 Agriculture Industry Construction Trade Transportation and storage Private services Public services Product taxes and subsidies GDP y/y, %Source: Central Statistical Bureau of Latvia; * - Flash estimate
    • Growth has been supported by regained competitiveness: wage-productivity gap has been closed Wage and productivity (2005 Q1 = 100; seasonally adjusted)160150140130120 110100 90 Q3 Q3 Q3 Q3 Q3 Q3 Q3 Q3 Q1 2011 Q1 2005 Q1 2006 Q1 2007 Q1 2008 Q1 2009 Q1 2010 Q1 2012 Labour productivity Real wageSource: Central Statistical Bureau of Latvia; Bank of Latvia’ s calculations
    • Export growth remains robust Export growth of goods and services (y-o-y; %, in nominal terms )252015 12.3%10 5 0 -5-10-15-20 2006 2007 2008 2009 2010 2011 2012 Q1-Q3Source: Central Statistical Bureau of Latvia
    • Current account stays close to balance Current account main positions (% of GDP) 15 10 8.6 5 2.9 0 -2.2 -1.9 -3.1 -2.7 -5 -10 -13.1 -15 -20 2008 2009 2010 2011 Q1 2012 Q2 Q3* Goods and Services Income Current Transfers Current AccountSource: Bank of Latvia; * Bank of Latvia GDP forecast used
    • Inflation on a declining trend, bringing compliance with the Maastricht inflation criteria Impact of food and energy prices on total inflation (pp) and the y-o-y inflation rate (%) 7 5.0 5 3 1.6 1 -1 -3 -5 I III V VII IX XI I III V VII IX XI I III V VII IX 2010 2011 2012 Food Energy Inflation (y-o-y) Inflation excluding food and energy (y-o-y)Source: Central Statistical Bureau of Latvia, Bank of Latvia calculations
    • Unemployment rate continued to decline Unemployment rate (% of economically active population)252015 13.5 10.710 5 0 V X V X V X V X II VII XII II VII XII II VII XII II VII I 2011 IV IX IV IX IV IX IV IX III III III III VI VIII XI VI VIII XI VI VIII XI VI VIII I 2009 I 2010 I 2012 Registered unemployment rate Unemployment rate (Labour Force Survey)Source: Central Statistical Bureau of Latvia; State Employment Agency
    • Financial sector issues 12
    • In 2012, the average level of deposits is almost the same as in previous year - depositors’ confidence is rather stable Domestic deposits (mln lats) 6000 5800 5600 5400 5200 5000 4800 4600 4400 4200 4000 IV IV IV IV IV I 2008 X I 2009 X I 2010 X X I 2012 X VII VII VII VII VII I 2011Source: Bank of Latvia
    • Decline in credit stock reflects still ongoing deleveraging Credit to private sector (y-o-y, %) 100 80 60 40 20 0 -20 IV IV IV IV IV IV IV I 2011 IV IV I 2004 X I 2005 X I 2006 X I 2007 X I 2008 X I 2009 X I 2010 X X I 2012 X VII VII VII VII VII VII VII VII VII Annual growth of household credit stock Annual growth of nonfinancial corporation credit stock Annual growth of resident credit stock (without government)Source: Bank of Latvia
    • The backing of the monetary base with foreign reserves is over 150% Net foreign assets and Monetary base (mln lats) 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 IV X IV X IV X IV X IV X VII VII VII VII VII I 2008 I 2009 I 2010 I 2012 I 2011 Net foreign assets Monetary baseSource: Bank of Latvia
    • Capital adequacy ratios at historically highest levels Capital adequacy ratios (%)201816141210 8 6 4 2 0 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 2006 2007 2008 2009 2010 2011 2012 CAR Tier 1 ratioSource: Financial and Capital Market Commission
    • Liquidity remains on a very high level Liquidity ratio (defined by FCMC, %) 70 60 50 40 30 Q1 2011 Q1 2006 Q1 2007 Q1 2008 Q1 2009 Q1 2010 Q1 2012 Q2 Q3 Q4 Q2 Q3 Q4 Q2 Q3 Q4 Q2 Q3 Q4 Q2 Q3 Q4 Q2 Q3 Q4 Q2 Q3Source: Financial and Capital Market Commission
    • Non-performing loans are adequately provisioned; asset quality gradually recovers Amount of loans over 90 days past due, provisions and their share in outstanding % loans mln lats 20 Share of provisions in outstanding 2,800 18 loans 16 Share of loans over 90 days past 2,400 due in outstanding loans 14 Provisions (right-hand scale) 2,000 12 Loans over 90 days past due (right- 1,600 10 hand scale) 8 1,200 6 800 4 400 2 0 0 Q3 Q4 Q2 Q3 Q4 Q2 Q3 Q4 Q2 Q3 Q4 Q2 Q3 Q4 Q2 Q3 Q4 Q2 Q3 Q4 Q1 2011 Q2 Q3 Q4 Q2 Q3 Q1 2005 Q1 2006 Q1 2007 Q1 2008 Q1 2009 Q1 2010 Q1 2012Source: Bank of Latvia, Financial and Capital Market Commission
    • Money market rates remained stable at low levels for a long time Lats money market interest rates (%, bps) bps30% 3025% 2520% 2015% 1510% 10 5% 5 0% 0-5% -5 jan 08 okt 08 jan 09 okt 09 jan 10 okt 10 jan 11 okt 11 jan 12 okt 12 apr 08 apr 09 apr 10 apr 11 apr 12 jūl 08 jūl 09 jūl 10 jūl 11 jūl 12 RIGIBOR-EURIBOR 3M spread (rhs) O/N 3M 1YSource: Bank of Latvia