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We are alive!        Now what?




                                  Source: The Economist


K. Cerbulis (karlis@nchriga.l...
My only prediction:

The global economy in the next 20 years
 will be more challenging/ volatile than
          the previo...
1. Situation in Latvia.




                          3
Investors consider Latvia as one of the riskiest in the
                 European Union...
         (though worries may be...
Latvia’s CDS (credit default swap)




                                     5
CDS: Latvia / Greece / Iceland
       Convergence!




                     Latvia



           Iceland




           Gr...
Latvia‟s GDP (% change y-o-y)




Source: Central Statistical Bureau, SEB      7
Bank Loans & Inflation
                       25 000                                                                      ...
Bank Loans & Apartment Prices
                       25 000                                                               ...
Wages and Productivity, 2000 = 100
   We became uncompetitive!


                              Nominal Wages




         ...
2. Global situation.




                       11
In 2007 the global domestic product totaled
              55 trillion USD....

  ... in 18 months of crisis global asset
 ...
The world economy today lives in a
         „Virtual reality‟




                                     13
Lowest Interest Rates in History




Source: The Economist                    14
Total Debt (% of GDP)
                                         2009 estimate
450%

400%

350%

300%

250%

200%

150%

100...
Total United States Credit as % of GDP


                                Baltic States
                                   ...
Budget Deficit (% of GDP)
 0%

-2%

-4%

-6%
                                                                      2009
-8...
USA Federal Budget Balance (% of GDP)




Source: Nordea Economic Outlook January 2010   18
New Bubbles?

• Bank assets in China + 28% in one year.

• Apartment prices in Bejing and Shanghai +50%.

• Price of land ...
We are experiencing a “non-linear” event,
such as: a meteorite striking the Earth...




                                 ...
No! A real meteorite!




                        21
Like the one that killed off the dinosaurs...




“Prediction is very difficult, especially of the future.” Niels Bohr

  ...
3.   Which way for Latvia?




                             23
Latvia Reacts Quickly
                          Current Account (% of GDP)
        2000      2001      2002   2003   2004 ...
Retail Trade (growth % YOY)
 60%

 40%

 20%

  0%

-20%
                                                                 ...
Three Laws in Real Estate:
       „Location, Location, Location.‟
Distance (km)
to Riga from:
 London: 1,662
 Berlin:   ...
„Swedish Occupation I‟
Estonia and Latvia (1629 – 1700)

 “Positive times, during which this period also
       acquired f...
„Swedish Occupation II‟
      (1998 - ...)




                          28
Conclusion and
  Recommendations




                    29
History of “Big” Crisis
• The „Great Depression‟ lasted 11 years
  (it ended only with the beginning of World War II) .

•...
Expect Economic Volatility
           the next 10+ years

• How to survive changing times:
  – Live modestly
  – Borrow le...
Would New Lending
           Solve Everything?

          Nej tack!”
           (“No, thank you!” in Swedish)

  Only fast...
Set Clear Targets:
    • Budget without deficit ASAP.
 “Be more Estonian than the Estonians!”

• Fast, effective bancruptc...
“It is not the strongest of species that
survives, nor the most intelligent that
survives.
It is the one that is the most ...
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We are alive! Now what? by Kārlis Cērbulis

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Brilliant and professional look at the current economical situation of Latvia. Kārlis Cērbulis is one of the bright economical minds in Latvia and collegue of mine in the economist association "EA2010" Enjoy!

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Transcript of "We are alive! Now what? by Kārlis Cērbulis"

  1. 1. We are alive! Now what? Source: The Economist K. Cerbulis (karlis@nchriga.lv) March 2010 1
  2. 2. My only prediction: The global economy in the next 20 years will be more challenging/ volatile than the previous 20 years. Can we still be successful? 2
  3. 3. 1. Situation in Latvia. 3
  4. 4. Investors consider Latvia as one of the riskiest in the European Union... (though worries may be subsiding) 4
  5. 5. Latvia’s CDS (credit default swap) 5
  6. 6. CDS: Latvia / Greece / Iceland Convergence! Latvia Iceland Greece 6
  7. 7. Latvia‟s GDP (% change y-o-y) Source: Central Statistical Bureau, SEB 7
  8. 8. Bank Loans & Inflation 25 000 16% 14% 20 000 Inflation 12% Bank loans Bank loans, mill. Ls + 533% ! 10% 15 000 Inflation 8% 6% 10 000 4% 2% 5 000 0% - -2% 2003 2004 2005 2006 2007 2008 2009 Source: Associtaion of Latvian Commercial Banks, Central Statistical Bureau 8
  9. 9. Bank Loans & Apartment Prices 25 000 100 000 119 Series 2-room apartment (55 m2) 90 000 20 000 80 000 Apartment price Bank loans, mill. Ls +269% 70 000 price, EUR 15 000 60 000 - 73% 50 000 10 000 Bank loans 40 000 30 000 5 000 20 000 10 000 - 0 2003 2004 2005 2006 2007 2008 2009 Source: Associtaion of Latvian Commercial Banks, Ober-Haus 9
  10. 10. Wages and Productivity, 2000 = 100 We became uncompetitive! Nominal Wages Productivity Source: Bank of Latvia 10
  11. 11. 2. Global situation. 11
  12. 12. In 2007 the global domestic product totaled 55 trillion USD.... ... in 18 months of crisis global asset values decreased by ~ 50 trillion USD. 12
  13. 13. The world economy today lives in a „Virtual reality‟ 13
  14. 14. Lowest Interest Rates in History Source: The Economist 14
  15. 15. Total Debt (% of GDP) 2009 estimate 450% 400% 350% 300% 250% 200% 150% 100% 50% 0% Latvia Estonia Lithuania Germany Finland Spain UK USA Source: World Bank, Eurostat 15
  16. 16. Total United States Credit as % of GDP Baltic States regain independence Source: www.growthology.org 16
  17. 17. Budget Deficit (% of GDP) 0% -2% -4% -6% 2009 -8% 2010* *estimate -10% -12% -14% Latvia Lituania Estonia Germany UK USA Source: World Bank, Eurostat 17
  18. 18. USA Federal Budget Balance (% of GDP) Source: Nordea Economic Outlook January 2010 18
  19. 19. New Bubbles? • Bank assets in China + 28% in one year. • Apartment prices in Bejing and Shanghai +50%. • Price of land in China + 106% Shanghai + 200%, Guangzhu 400% Sounds familiar? 19
  20. 20. We are experiencing a “non-linear” event, such as: a meteorite striking the Earth... 20
  21. 21. No! A real meteorite! 21
  22. 22. Like the one that killed off the dinosaurs... “Prediction is very difficult, especially of the future.” Niels Bohr The world will be very different than before the crisis. 22
  23. 23. 3. Which way for Latvia? 23
  24. 24. Latvia Reacts Quickly Current Account (% of GDP) 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009* 10% 5% 0% -5% -10% -15% -20% -25% Source: Bank of Latvia * Provisional data 24
  25. 25. Retail Trade (growth % YOY) 60% 40% 20% 0% -20% Retail turnover -40% -60% Registration of -80% new vehicles -100% Source: Latvian Association of Authorized Car Dealers, Central Statistical Bureau 25
  26. 26. Three Laws in Real Estate: „Location, Location, Location.‟ Distance (km) to Riga from:  London: 1,662  Berlin: 846  Moscow: 835  Stockholm 437  Helsinki: 360 26
  27. 27. „Swedish Occupation I‟ Estonia and Latvia (1629 – 1700) “Positive times, during which this period also acquired fame as golden times.” Wikipedia 27
  28. 28. „Swedish Occupation II‟ (1998 - ...) 28
  29. 29. Conclusion and Recommendations 29
  30. 30. History of “Big” Crisis • The „Great Depression‟ lasted 11 years (it ended only with the beginning of World War II) . • 1970‟s USA crisis lasted 9 years. • Japan‟s „deflation spiral‟ lasts more than 20 years. The crisis is here to stay for a while! It will change and shift form. 30
  31. 31. Expect Economic Volatility the next 10+ years • How to survive changing times: – Live modestly – Borrow less (as a country, as individuals) – Export more than import. Live like a „frugal family‟ would. 31
  32. 32. Would New Lending Solve Everything? Nej tack!” (“No, thank you!” in Swedish) Only fast credit write-offs provide a solution. (“When gross external debt exceeds 90% of GDP, annual growth rates are cut in half.” ) Reinhart & Rogoff 32
  33. 33. Set Clear Targets: • Budget without deficit ASAP. “Be more Estonian than the Estonians!” • Fast, effective bancruptcy procedure for individuals and companies. • Encourage lending to companies, hinder consumer borrowing. • Rapid reform of pension system. 33
  34. 34. “It is not the strongest of species that survives, nor the most intelligent that survives. It is the one that is the most adaptable to change.” Ch. Darwin 34

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