Latvia 2017 OECD Economic Survey boosting productivity and inclusiveness
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Latvia 2017 OECD Economic Survey boosting productivity and inclusiveness
- 1. 2017 OECD ECONOMIC SURVEY OF LATVIA Boosting productivity and inclusiveness September 15th 2017, Riga Latvia http://www.oecd.org/eco/surveys/economic-survey-latvia.htm
- 2. Main messages 1 • The Latvian economy is growing strongly, underpinned by progress with economic reforms. • Deeper integration into international trade is necessary to catch up with high-income countries. • Poverty and unemployment are still high. Access to jobs, housing and health services need to improve.
- 3. Growth has been strong 2 75 80 85 90 95 100 105 110 75 80 85 90 95 100 105 110 2007Q1 2007Q3 2008Q1 2008Q3 2009Q1 2009Q3 2010Q1 2010Q3 2011Q1 2011Q3 2012Q1 2012Q3 2013Q1 2013Q3 2014Q1 2014Q3 2015Q1 2015Q3 2016Q1 2016Q3 2017Q1 Latvia Estonia Euro area Real GDP, Index 2007 =100 Source: OECD (2017), OECD Economic Outlook: Statistics and Projections (database).
- 4. 3 Exports have gained market share Source: OECD (2017), OECD Economic Outlook: Statistics and Projections (database). Export performance indicator, moving average 2010=100
- 5. 4 Unemployment has fallen Unemployment rate as % of labour force Source: OECD (2017), OECD Economic Outlook: Statistics and Projections (database). 0 4 8 12 16 20 24 0 4 8 12 16 20 24 2010Q4 2011Q1 2011Q2 2011Q3 2011Q4 2012Q1 2012Q2 2012Q3 2012Q4 2013Q1 2013Q2 2013Q3 2013Q4 2014Q1 2014Q2 2014Q3 2014Q4 2015Q1 2015Q2 2015Q3 2015Q4 2016Q1 2016Q2 2016Q3 2016Q4 2017Q1 2017Q2 Latvia Euro area
- 6. 5 Wages have grown more than prices Source: OECD (2017), OECD Economic Outlook: Statistics and Projections (database). Growth of labour compensation per employee and consumer price inflation -4 -2 0 2 4 6 8 10 12 -4 -2 0 2 4 6 8 10 12 2010Q4 2011Q1 2011Q2 2011Q3 2011Q4 2012Q1 2012Q2 2012Q3 2012Q4 2013Q1 2013Q2 2013Q3 2013Q4 2014Q1 2014Q2 2014Q3 2014Q4 2015Q1 2015Q2 2015Q3 2015Q4 2016Q1 2016Q2 2016Q3 2016Q4 2017Q1 2017Q2 %% Worker pay Inflation
- 7. 6 Latvia is a top reformer The 2017 Going for Growth reform responsiveness indicator Source: OECD (2017) Going for Growth 2017 edition. 0 20 40 60 80 IDN SVN AUS CAN ISL TUR LUX PRT POL CHE NZL ZAF KOR FIN GBR SVK HUN SWE USA COL OECD ESP NOR IND JPN DEU DNK NLD CZE EST IRL ITA GRC MEX CHN ISR CHL AUT BEL BRA FRA LVA %
- 8. 7 Debt has fallen Debt as % of GDP Source: OECD (2017), OECD Economic Outlook: Statistics and Projections (database) and OECD National Accounts Statistics (database). 0 40 80 120 160 200 0 40 80 120 160 200 2010 2011 2012 2013 2014 2015 %% Households Non-financial corporations
- 10. 9 The gap in productivity remains large -80 -75 -70 -65 -60 -55 -50 -45 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 % Gap in GDP per capita of Latvia vis-à-vis the upper half of OECD countries Source: OECD (2017), OECD National Accounts Statistics (database) and OECD Productivity Statistics (database).
- 11. 10 Poverty is high Source: OECD (2017), OECD Social and Welfare Statistics (database). Share of population with disposable income below the poverty line, 2015 or latest 0 3 6 9 12 15 18 0 3 6 9 12 15 18 CZE FIN NOR LUX SVK AUT BEL IRL SVN GBR OECD PRT ITA GRC ESP EST LTU LVA %%
- 12. 11 Income inequality remains high Source: OECD (2017), OECD Social and Welfare Statistics (database). Gini coefficient, scale from 0 (perfect equality) to 1 (perfect inequality), 2015 or latest available 0.0 0.1 0.2 0.3 0.4 0.5 0.0 0.1 0.2 0.3 0.4 0.5 ISL SVK SVN DNK CZE NOR FIN BEL AUT SWE LUX HUN DEU KOR FRA CHE IRL POL NLD CAN OECD ITA JPN AUS PRT GRC ESP EST NZL LVA ISR GBR USA TUR CHL MEX
- 13. 12 Higher income, better housing and better health would raise wellbeing Source: OECD (2016), OECD Better Life Index- Edition 2016. OECD Better Life Index, from 0 (worse) to 1 (best), 2016 0.0 0.2 0.4 0.6 0.8 1.0 Income and wealth Jobs and earnings Housing Work and life balance Health status Education and skillsSocial connections Environmental quality Personal security Subjective well-being Latvia OECD Civic engagement and governance
- 14. 13 Credit growth is still weak -10 -5 0 5 10 -10 -5 0 5 10 2009M3 2009M6 2009M9 2009M12 2010M3 2010M6 2010M9 2010M12 2011M3 2011M6 2011M9 2011M12 2012M3 2012M6 2012M9 2012M12 2013M3 2013M6 2013M9 2013M12 2014M3 2014M6 2014M9 2014M12 2015M3 2015M6 2015M9 2015M12 2016M3 2016M6 2016M9 2016M12 2017M3 %% Households Non-financial corporations Source: Bank of Latvia. Year-on-year percentage change of credit stock
- 15. 14 Seize opportunities in global markets to catch up with high-income countries
- 16. 15 Productivity growth has slowed Average annual growth of labour productivity Source: OECD (2017), OECD Productivity Statistics (database). 0 2 4 6 8 10 0 2 4 6 8 10 1995-2005 2005-2016 1995-2005 2005-2016 1995-2005 2005-2016 Total Manufacturing Business sector services %%
- 17. Trade could boost productivity and income Domestic value added per worker embodied in foreign final demand, 2011 Source: OECD/WTO (2016), Statistics on Trade in Value Added (database) and OECD (2016), "Trade in Employment: Core Indicators" in OECD Structural Analysis (STAN) Databases. 16
- 18. 17 Latvia must move up the value chain to knowledge-intensive activities Source: OECD (2013), Interconnected Economies: Benefiting from Global Value Chains, OECD Publishing, Paris.
- 19. 18 Many workers feel under-skilled at the time of hiring Source: CEDEFOP (2016), “Skills Panorama” (http://skillspanorama.cedefop.europa.eu). Share of employees reporting lower skill level than required for their jobs at the time of hiring, 2014 0 10 20 30 40 50 0 10 20 30 40 50 LUX ESP SVN DEU NLD BEL GRC ITA AUT HUN SWE POL GBR FRA PRT DNK IRL FIN CZE SVK LVA LTU EST
- 20. 19 Skill shortages are holding back participation in global value chains Source: CEDEFOP (2016), “Skills Panorama” (http://skillspanorama.cedefop.europa.eu). 0 3 6 9 12 15 0 3 6 9 12 15 LUX PRT DEU AUT ITA ESP GBR SVN NLD FRA DNK BEL POL HUN GRC SWE IRL SVK CZE FIN LVA LTU EST %% Share of employees reporting lower skill level than required for their current jobs, 2014
- 21. 20 Few firms cooperate with research institutions 0 5 10 15 20 25 0 5 10 15 20 25 ITA LVA LTU PRT CHE GRC LUX HUN CZE SVK POL FRA DNK NLD SWE DEU EST NOR ISL BEL SVN FIN AUT %% Source: Eurostat (2016), Community Innovation Survey (CIS). The share of firms engaging in research cooperation % of all product and/or process-innovating firms, 2012-14
- 22. 21 Low debt recovery hampers access to credit 0 20 40 60 80 100 0 20 40 60 80 100 TUR CHL GRC EST HUN LUX CHE LVA SVK POL ISR ITA CZE MEX OECD PRT SWE ESP FRA USA AUS AUT NZL DEU KOR ISL CAN IRL DNK GBR SVN NLD BEL FIN JPN NOR %% Source: World Bank (2017), Doing Business 2016: Measuring Regulatory Quality and Efficiency (Resolving insolvency database). Average recovery rate from insolvency , 2016
- 23. 22 Infrastructure lags behind peer countries Global Competitiveness Index, scale from 1 to 7 (best) 2016-17 0 1 2 3 4 5 6 7 0 1 2 3 4 5 6 7 Latvia Estonia Lithuania Finland Source: World Economic Forum, "The Global Competitiveness Report 2016-2017".
- 24. 23 Provide more generous grants for students attending vocational schools who are from low-income families. Expand grants for university students and target them to students from low-income families. Increase government funding of innovation promotion programmes with strong evaluation results. Strengthen the specialisation of judges to improve the insolvency regime. Apply the same cost-benefit tests to large national infrastructure projects as are applied to EU-funded projects. Recommendations to seize opportunities in global markets to catch up with high-income countries
- 25. 24 Improving access to jobs, housing, and health services
- 26. 25 Unemployment is high in some regions Source: Central Statistical Bureau of Latvia. 0 4 8 12 16 20 0 4 8 12 16 20 Latvia Pierīga Riga Vidzeme Kurzeme Zemgale Latgale %% Unemployment as % of the labour force, 2016
- 27. 26 High unemployment keeps poverty high Source: Central Statistical Bureau of Latvia. 0 9 18 27 36 45 0 9 18 27 36 45 Latvia Riga Pierīga Kurzeme Zemgale Vidzeme Latgale %% Share of population with disposable income below 60% of median household income
- 28. 27 Access to affordable rental housing is low 0 10 20 30 40 50 60 70 80 0 10 20 30 40 50 60 70 80 LTU MEX³ POL EST SVK HUN CHL³ LVA SVN PRT GRC CZE ITA ESP NOR IRL AUS³ ISL KOR GBR FIN LUX FRA CAN³ USA³ BEL AUT CHE SWE³ DNK³ NLD³ DEU %% Rent (private)¹ Rent (subsidized)² Share of rental housing, low-income households, 2014 or latest year Source: OECD (2016), OECD Affordable Housing Database.
- 29. 28 Spending on active labour market policies is low Source: OECD (2017), OECD Employment and Labour Market Statistics (database). Public expenditure, % of GDP, 2015 or most recent 0.0 0.4 0.8 1.2 1.6 2.0 2.4 0.0 0.4 0.8 1.2 1.6 2.0 2.4 MEX USA JPN LVA ISR CHL EST SVK AUS GBR CAN SVN LTU NZL KOR CZE POL ITA OECD NOR PRT IRL CHE ESP DEU LUX BEL AUT NLD HUN FIN FRA SWE DNK
- 30. 29 Out-of-pocket payments in healthcare are high Source: OECD (2017), OECD Health Statistics (database) 0 10 20 30 40 50 0 10 20 30 40 50 FRA LUX USA NLD SVN DEU JPN CZE DNK NOR CAN GBR IRL SWE TUR ISL BEL AUT SVK FIN OECD EST ITA POL ESP ISR PRT CHE HUN CHL GRC KOR MEX LVA Household out-of-pocket expenditure, % of total current expenditure on health care, 2015
- 31. 30 Workers pay high fees for private pensions 0.0 0.4 0.8 1.2 1.6 2.0 0.0 0.4 0.8 1.2 1.6 2.0 FIN DNK NLD LUX DEU GBR¹ PRT ISL NOR BEL AUT CAN ISR NZL¹ HUN CHE CHL¹ POL AUS GRC¹ TUR¹ SVK SVN ESP CZE EST LVA %% Operating costs of the private pension system % of assets under management, 2015 Source: OECD (2017), OECD Pensions Statistics (database).
- 32. 31 Expand the mobility programme, which provides temporary support for relocation and transport to unemployed moving to a job. Provide more funding for low-cost rented housing in areas of expanding employment. Improve legal certainty in rental regulation and encourage out-of-court procedures. Simplify the administrative process for obtaining a building permit. Promote the provision of adult education by vocational education schools. Lower operating costs in the compulsory private pension system, for example by introducing a low-cost fund as the default choice. Reduce health care out-of-pocket payments especially for the low-income population. Recommendations to improve access to jobs, housing, and health services
- 33. 32 Using budget and tax policy to support inclusive growth
- 34. Government debt is low 33 Source: OECD Economic Outlook 101 database. National Accounts definition of government debt (not Maastricht). 0 40 80 120 160 200 240 0 40 80 120 160 200 240 EST LUX NZL NOR CHE KOR LVA AUS CZE DNK SWE LTU SVK ISR ISL POL NLD FIN DEU IRL HUN SVN CAN AUT USA OECD ESP GBR FRA BEL PRT ITA GRC JPN General government debt % of GDP, 2016
- 35. 34 Informality remains high Source: Putniņš, T. and A. Sauka (2017), "Shadow Economy Index for the Baltic Countries", Stockholm School of Economics in Riga. Estimated size of the shadow economy and underreported corporate profits and wages, 2016
- 36. 35 Taxes on low wages are high Source: OECD (2017), OECD Tax Statistics (database) and OECD estimate of tax reform effect. Taxation of labour income, 2016 % of total labour compensation, single person at 67% of average earnings without children 0 10 20 30 40 50 0 10 20 30 40 50 CHL NZL ISR MEX KOR CHE IRL AUS GBR CAN USA ISL NLD JPN LUX OECD NOR DNK POL TUR ESP GRC PRT EST FIN SVN SVK CZE ITA SWE LVA AUT FRA DEU BEL HUN %% after tax reform Tax reform approved in 2017 will reduce taxes on profits and wages from 2018.
- 37. 36 Raise spending to address pressing structural and social policy priorities. Make better use of information and communication technology for tax law enforcement. Strengthen the budgetary independence of the Corruption Prevention and Combating Bureau (KNAB). Remove political influence in the appointment of judges. Reduce taxes on low wages further. Raise more revenues from the taxation of real estate and energy. Broaden the base of business income taxation by removing tax exemptions. Recommendations for budget and tax policy to support inclusive growth
- 38. 37 For more information http://www.oecd.org/eco/surveys/economic-survey-latvia.htm OECD OECD Economics Disclaimers: The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law. This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area.