Recent competition law developments: EU and Latvia Debora Pāvila Jūlija Jerņeva Riga, 5 March 2010.
Recent Economic Developments in Latvia and Medium-term Outlook
21
Economic Developments in Latvia Latvia July 2012 July , 2012
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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 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.
Transcript of Recent Economic Developments in Latvia and Medium-term Outlook
Economic Developments in LatviaLatvia
July 2012July, 2012
Macroeconomic Overview
2
Economic growth remains strong; 3 5 4 0% GDP growth is projected for 20123.5-4.0% GDP growth is projected for 2012
Real GDP growth (%)Real GDP growth (%)8
5 6
6.6
5 7
6.9
6
7
5.6 5.75.5
5
6
3.54
3.5 – 4.0%
3
2Q1 2011 Q2 Q3 Q4 Q1 2012 2011
Source: Central Statistical Bureau; F – Bank of Latvia forecast3
2012 F
Exports and investment remain key drivers of growthgrowth
Real GDP growth (y-o-y %) and contribution to the growth (percentage points)Real GDP growth (y-o-y, %) and contribution to the growth (percentage points)
15
20
3 55.6 6.6 5.7
6.910
3.5
0
5
-10
-5
-15Q1 2011 Q2 Q3 Q4 Q1 2012
Private consumption Public consumption Fixed investment
Source: Central Statistical Bureau
Changes in inventories Exports ImportsGDP, % yoy 4
Economic growth is underpinned by restored competitiveness as wage-productivity gap has p g p y g pbeen closed
Labour productivity and real wages
160
Labour productivity and real wages(2005 Q1 = 100; seasonally adjusted)
140
150
120
130
100
110
90
Q1
2005 Q
3
Q1
2006 Q
3
Q1
2007 Q
3
Q1
2008 Q
3
Q1
2009 Q
3
Q1
2010 Q
3
Q1
2011 Q3
Q1
2012
Q Q Q Q Q Q Q Q
Labour productivity Real wage
Source: Central Statistical Bureau of Latvia; Bank of Latvia’ s calculations 5
Strong competitive position and recovering profitability has pushed up investmentprofitability has pushed up investment
Gross fixed capital formation (% y-o-y)
31.4 28 8
39.040
50Gross fixed capital formation (% y-o-y)
31.4 28.8 27.6 26.0
20
30
2.9
-0.810
0
10
30
-20
-10
-43.1
-34.9
-50
-40
-30
50
I 201
0 II III
IV
I 201
1 II III
IV
I 201
2
6Source: Central Statistical Bureau of Latvia
Latvia ranges among the export leaders in EuropeEurope
Merchandise export revenue growth (2011 over 2009 %)85
72 71 7180
90
Merchandise export revenue growth (2011 over 2009, %)
55 53
44 44 43 4350
60
70
44 44 43 43 4238 35 34 34 33 33 32 31 30 29 29 26 23 21
30
40
50
102
0
10
20
0
Est
onia
Bul
gari
aL
atvi
aL
ithua
nia
Rom
ania
Gre
ece
Rep
ublic
Mal
taSw
eden
Cyp
rus
Slov
akia
Pola
ndH
unga
ryK
ingd
omPo
rtug
alSl
oven
iath
erla
nds
Ger
man
ySp
ain
Aus
tria
Bel
gium Ital
yFi
nlan
dFr
ance
Den
mar
kIr
elan
dxe
mbo
urg
L
Cze
ch
Uni
ted
K
Net G D
Lux
Source: Eurostat7
Recently, export growth has decelerated as external demand weakens, but it still remains ,on a solid footing
Merchandise export growth (y o y %)
40
Merchandise export growth (y-o-y %)
20
30 Export unit value Real export
13.0%
0
10
-10
0
-30
-20
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
2008
Q Q Q Q
2009
Q Q Q Q
2010
Q Q Q Q
2011
Q Q Q Q
2012
Q
Source: Central Statistical Bureau of Latvia8
Current account stays close to balancey
Current account and its components (% of GDP)
15
20
Current account and its components (% of GDP)
8.7
5
10
5.5
-0.3 -0.80.7
-1.11.2
-2 9-5
0
-5.3-2.9
-15
-10
5
-20
15
2010 1Q Q2 Q3 Q4 2011 1Q Q2 Q3 Q4 2012 1Q
Current Transfers Income Services Goods Current AccountSource: Bank of Latvia
9
Inflation on a declining trend; inflation forecastfor this year remains 2 4%for this year remains 2.4%
Impact of food and energy prices on total inflation (pp) and the y o y inflation rate (%)
4
5Impact of food and energy prices on total inflation (pp) and the y-o-y inflation rate (%)
3
4
1.9
1
2
0
-2
-1
I 2011
II III IV V VI VII VIII IX X XI XII I 2012
II III IV V VI
Food Energy Y-o-y inflation Y-o-y inflation excluding food and energy pricesSource: CSB, BoL calculations
10
Unemployment rate continued to decline; however still stays at elevated levelhowever, still stays at elevated level
Unemployment rate (% of economically active population)
25
Unemployment rate (% of economically active population)
Methodology change
17.3
20.5
16.320
gy g(population census) impact: Registered unemployment rate: + 1.6 pp as from April 2012
11.9
10
15 Unemployment rate: + 0.7 pp as from Q1 2011
5
0
2008
I II III
IV V VI
VII
VII
IIX X X
IX
II20
09 I II III
IV V VI
VII
VII
IIX X X
IX
II20
10 I II III
IV V VI
VII
VII
IIX X X
IX
II20
11 I II III
IV V VI
VII
VII
IIX X X
IX
II20
12 I II III
IV V VI
Registered unemployment rate Unemployment rate (Labour Force Survey)
Source: Central Statistical Bureau of Latvia; State Employment Agency11
With the economic environment stabilizing, Latvia has been able to attract more net FDIsLatvia has been able to attract more net FDIs
Net FDI inflows (% of GDP)Net FDI inflows (% of GDP)
8.4 8.110
Ne ows (% o G )Ne ows (% o G )
3 8
5.6
3 6
6.25.6
6.7
3 8 3 85
3.8
0.41.6 1.6
3.6
1.6
3.8 3.8
-0.9
0
-5
2006
2007
2008
2009
2010
2011
2010
2010
2010
2010
2011
2011
2011
2011
2012
2 2 2 2 2 2
Q1
2
Q2
2
Q3
2
Q4
2
Q1
2
Q2
2
Q3
2
Q4
2
Q1
2
Source: Bank of Latvia12
External debt as a proportion of GDP has been decliningdeclining
Net external debt (% of GDP)
58.758
60
Net external debt (% of GDP)
54
56
58
48
50
52
44
46
48
42.440
42
Q1 2007
Q2 Q3 Q4 Q1 2008
Q2 Q3 Q4 Q1 2009
Q2 Q3 Q4 Q1 2010
Q2 Q3 Q4 Q1 2011
Q2 Q3 Q4 Q1 20122007 2008 2009 2010 2011 2012
Source: Bank of Latvia13
Financial sector issues
14
In 2012, the average level of deposits is almost the same as in previous year - depositors’
Domestic deposits (mln lats)
p y pconfidence is rather stable
Domestic deposits (mln lats)
5800
5600
5200
5400
5000
5200
4800
008 II III
IV V VI
VII III
IX X XI
XII
009 II III
IV V VI
VII III
IX X XI
XII
010 II III
IV V VI
VII III
IX X XI
XII
011 II III
IV V VI
VII III
IX X XI
XII
012 II III
IV V
I 20 V V X
I 20 V V X
I 20 V V X
I 20 V V X
I 20
Source: Bank of Latvia
* In October 2010, decline of deposits reflects large one-off effect from restructuring of funding within financial group 15
The backing of the monetary base with foreign reserves is around 200%foreign reserves is around 200%
Net foreign assets and Monetary base (mln lats)
4,000
4,500
Net foreign assets and Monetary base (mln lats)
3,000
3,500
2,000
2,500
1,000
1,500
0
500
08 II II V V VI II II X X XI II 09 II II V V VI II II X X XI II 0 II II V V VI II II X X XI II 11 II II V V VI II II X X XI II 2 II II V V VI
I 200
I II IV V V VI
VII IX X X XI
I 200
I II IV V V VI
VII IX X X XI
I 201
I II IV V V VI
VII IX X X XI
I 201
I II IV V V VI
VII IX X X XI
I 201
I II IV V V
Net foreign assets Monetary base16
Source: Bank of Latvia
Liquidity remains on a very high levelq y y g
Liquidity ratio (defined by FCMC %)
70
Liquidity ratio (defined by FCMC, %)
60
50
40
30
Q1
2006 Q2
Q3
Q4
Q1
2007 Q2
Q3
Q4
Q1
2008 Q2
Q3
Q4
Q1
2009 Q2
Q3
Q4
Q1
2010 Q2
Q3
Q4
Q1
2011 Q2
Q3
Q4
Q1
2012
Q Q Q Q Q Q Q
Source: Financial and Capital Market Commission 17
Sector capital adequacy ratios at historically highest levelshistorically highest levels
Capital adequacy ratios (%)
18
20
Capital adequacy ratios (%)
12
14
16
18
8
10
12
2
4
6
0
2
Q1 2006 Q3 Q1 2007 Q3 Q1 2008 Q3 Q1 2009 Q3 Q1 2010 Q3 Q1 2011 Q3 Q1 2012
CAR Tier 1 ratio
Source: Financial and Capital Market Commission 18
Non-performing loans are adequately provisioned; asset quality gradually p ; q y g yrecovers particularly in corporate sector
Amount of loans over 90 days past due, provisions and their share in outstanding
2,80018
20mln lats%
Share of provisions in outstanding loans
Amount of loans over 90 days past due, provisions and their share in outstanding loans
2,000
2,400
,
14
16
18 loansShare of loans over 90 days past due in outstanding loansProvisions (right-hand scale)
1,200
1,600
,
8
10
12Loans over 90 days past due (right-hand scale)
400
800
1,200
4
6
8
0
400
0
2
Q3
Q4
2005 Q
2Q
3Q
420
06 Q2
Q3
Q4
2007 Q
2Q
3Q
420
08 Q2
Q3
Q4
2009 Q
2Q
3Q
420
10 Q2
Q3
Q4
2011 Q2
Q3
Q4
2012
Q1
2
Q1
2
Q1
2
Q1
2
Q1
2
Q1
2
Q1
2
Q1
2
Source: Bank of Latvia, Financial and Capital Market Commission 19
Money market rates have remained stableat low levels for a long timeat low levels for a long time
Money market rates (%)30%
Money market rates (%)
20%
25%
15%
5%
10%
0%
5%
08 08 08 08 08 08 09 09 09 09 09 09 10 10 10 10 10 0 11 11 11 11 11 11 12 12 12 12
jan
0m
ar 0
mai
0
jūl 0
sep
0
nov
0
jan
0m
ar 0
mai
0
jūl 0
sep
0
nov
0
jan
1m
ar 1
mai
1
jūl 1
sep
1
nov
1
jan
1m
ar 1
mai
1
jūl 1
sep
1
nov
1
jan
1m
ar 1
mai
1
jūl 1
RIGIBOR 3M RIGIBOR 6M RIGIBOR 12M 20Source: Bank of Latvia
