“All We Have to Fear Is Fear Itself� - and the Eurozone ECR Vilnius 8 November 2012
Morten Hansen Head of Economics Department Stockholm School of Economics in Riga morten.hansen@sseriga.edu
Economic growth in the Baltics Q1 2010 – Q2 2012 12.0
10.0 8.0 6.0
4.0
Estonia
2.0
Latvia
0.0
Lithuania 2010Q1 2010Q2 2010Q3 2010Q4 2011Q1 2011Q2 2011Q3 2011Q4 2012Q1 2012Q2
-2.0 -4.0 -6.0 -8.0
- and with some comparator countries 2010Q1 2010Q2 2010Q3 2010Q4 2011Q1 2011Q2 2011Q3 2011Q4 2012Q1 2012Q2 12.0 10.0 8.0 6.0
Estonia
4.0
Greece
2.0
Spain
0.0
Latvia
-2.0 -4.0 -6.0 -8.0 -10.0
Lithuania
IMF forecasts: Continued growth in the Baltics 2010
2011
2012
2013
2014
2015
10 8
6
Estonia
4
Greece
2
Italy
0 -2 -4 -6 -8
Latvia Lithuania Spain
But creditless growth Latvia – annual growth of credits 70.0 60.0 50.0 40.0
30.0 20.0 10.0 0.0 IV VII X
-10.0 -20.0
2004
I IV VII X 2005
I IV VII X 2006
I IV VII X 2007
I IV VII X 2008
I IV VII X 2009
I IV VII X 2010
I IV VII X 2011
I IV 2012
What should make you happy! Rapid growth of household consumption in the Baltics 10.0
8.0 6.0 4.0
2.0
Estonia
0.0
Latvia 2010Q1 2010Q2 2010Q3 2010Q4 2011Q1 2011Q2 2011Q3 2011Q4 2012Q1 2012Q2
-2.0 -4.0 -6.0 -8.0 -10.0
Lithuania
Export growth, %, year-on-year Competitiveness seemingly not an issue 2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
30 25 20
15 10
Estonia
5
Latvia
0
Lithuania
-5 -10 -15
-20 -25
Thus Estonia, Latvia and Lithuania are in no way or form Greece, Spain, Italy or Portugal‌.
Economic growth in the eurozone - back into recession Failure‌
Eurozone unemployment rate – all-time high… Failure…
But the eurozone is where Estonia already is and where Latvia is heading‌ And Lithuania?
Population reduction, past decade 14%
Joining the Eurozone is advantageous for Latvia and Lithuania
12% 10%
Inside or outside the Eurozone: Similar impact on economic development
8% 6% 4%
Problems lie in labour markets‌
2%
0%
Estonia
Latvia
Lithuania
2012Q1
2011Q3
2011Q1
2010Q3
2010Q1
2009Q3
2009Q1
2008Q3
2008Q1
2007Q3
2007Q1
2006Q3
2006Q1
2005Q3
2005Q1
2004Q3
2004Q1
2003Q3
2003Q1
2002Q3
2002Q1
2001Q3
2001Q1
Unemployment rates, Baltics and Denmark Utter waste of resources! Risk of bottlenecks
25.0
20.0
15.0 Denmark
Estonia
10.0 Latvia
Lithuania
5.0
0.0
Example: Latvia Labour force and employment (1000s) 1200 1150
Q1 2012:
1100
1,001,600 in the labour force
1050
1000 950 900
Labour force Q4 2007:
850 800
1,106,600 employed
750 700
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2011 2012 Recal
Employed
A few conclusions Broad-based growth – But eurozone development
Creditless growth – Thus slower
The labour market is the main obstacle – Way too high structural unemployment – Far too little has been done – Companies should be more proactive in this process!
Thank you for your attention! Questions and comments are welcome
Stockholm School of Economics in Riga
Founded 1994