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Global Challenges and Local Opportunities: Achievements and Prospects in the Baltic States

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Presentation by Ilmārs Rimšēvičs, Governor of the Bank of Latvia at the Bank of Latvia conference "Global Challenges and Local Opportunities: Achievements and Prospects in the Baltic States".
Riga, 12 October 2011.

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Global Challenges and Local Opportunities: Achievements and Prospects in the Baltic States

  1. 1. Global Challenges and LocalOpportunities: Achievements and Prospects in the Baltic States Ilmārs Rimšēvičs Governor, Bank of Latvia Riga, 12 October 2011
  2. 2. The small economies of the European Union that have introduced the euro suffered less during the crisis GDP growth (average per group of countries; %)10 8.9 8.3 6.7 5 4.4 5.2 2.3 0 0.9 0.5 -4.4 -5-10 Cyprus, Malta, Slovakia and Slovenia Baltic States and Bulgaria -13.1-15 2006 2007 2008 2009 2010
  3. 3. At this stage Estonia is seven steps ahead of us in terms of soundness, measured by credit rating S&P ratings of sovereign long-term liabilities AA AAAA- AA- A+ A+ A A A- A-BBB+ BBB+BBB BBBBBB- BBB-BB+ BB+ BB BBBB- BB- B+ B+ 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011Source: Bloomberg. Estonia Latvia Investment-grade rating
  4. 4. Estonia has also received a considerably larger inflow of foreign direct investment Accumulated foreign direct investment per capita (EUR)12000.010000.0 In Latvia In Estonia 9685.0 8000.0 8780.9 6000.0 4000.0 4041.8 2000.0 3578.4 0.0 2008 Q4 2011 Q2 Sources: Latvijas Banka, Eesti Pank, Eurostat.
  5. 5. Better unemployment rates in Estonia also reflect it Registered unemployment (% of economically active population) 20 15 11.8 10 7.4 5 2010 I IV VII X 2011 I IV VII Latvia EstoniaSources: State Employment Agency , Estonias State Employment Agency.
  6. 6. Higher labour productivity results in betterremuneration in Estonia: average monthly gross wagesand salaries in Estonia = 821 EUR, in Latvia = 664 EUR Average monthly gross wages and salaries (EUR; seasonally adjusted data)900800700600500400300 Q3 Q3 Q3 Q3 Q3 Q3 2011 Q1 2005 Q1 2006 Q1 2007 Q1 2008 Q1 2009 Q1 2010 Q1 Estonia LatviaSources: Central Statistical Bureau of the Republic of Latvia, Statistikaamet.
  7. 7. Average old-age pensions are 42 EUR lower in Latvia (305 EUR and 263 EUR respectively ) Average old age pension, EUR340300260220180140 Q3 Q3 Q3 Q3 2007 Q1 2008 Q1 2009 Q1 2010 Q1 2011 Q1 Estonia LatviaSources: State Social Insurance Agency, Statistikaamet.
  8. 8. Global economic outlook starts aggravating considerably Industrial confidence indicator in Europe Industrial PMI (50 = neutral)20 6510 60 0 55-10 50 45-20 40-30 35-40 I06 II III VI XI VII XII VIII IV IX V X I11 VI 30 2008I 2009I 2010I VII VII VII VII IV X IV X IV X 2011I IV EU industrial confidence Euro area industrial confidence Germany Euro area UK US Latvias industrial confidence
  9. 9. Growth forecasts for global economies are downsized GDP growth, % 6 4 2 Euro area 0.1 Germany 0.6 0 France 0.2 Italy -0.4 -2 Spain -0.4 -4 -6 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011*2012* * GS Global ECS Research.
  10. 10. Planning the state budget with a deficit during the years ofrapid growth led to a deep fiscal crisis during the years of economic downslide Consolidated general government budget surplus/deficit, % of GDP (EAS 95) 2.0 0.0 -2.0 -4.0 -4.2 -4.6 -6.0 -8.0 -7.7 -10.0 -9.7 Planned Actual (2011 – base forecast) -12.0 2004 2005 2006 2007 2008 2009 2010 2011 2012
  11. 11. Latvia at the crossroads
  12. 12. Failing to introduce the euro and improve credit ratings may cost almost a billion lats from the budget in the next 10 yearsAdditional annual interest payment in case we fail to introduce the euro and continue to borrow and refinance the debt in the financial market (in millions of lats) In 10 years it will cost us almost one billion lats more160140 132 136 121120 107 111 103100 78 80 60 50 40 33 17 20 0 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
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