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Competitiveness
ESTP Course - MIPLuxembourg 1-3 December 2015
Justyna Gniadzik, MIP TF
MIP Competitiveness indicators• 3 headline indicators
• REER • ULC • EMS
• + auxiliary indicators• GFCF, Net Trade Balance of energy products,
REER – EA, EMS vs. advanced economies, Terms of trade, EMS in volume, Labour productivity, Nominal ULC, ULC performance vs. EA
MIP Competitiveness measures
Price competitiveness and export market shares(Average annual percentage changes, pre-crisis 1999-2008Q3)
MIP Competitiveness measures• Cost competitiveness
MIP indicators: REER, ULC Labour, energy, intermediate services costs
Terms of trade, REER vs. EA,…
• Non-cost competitivenessMIP indicators
GERD, Labour productivity, …Other official statistics Rankings - WB doing businessResearch – TFP
Developments in trade •EMS
Net Trade Balance of energy productsBreakdowns by products, markets; different frequencies
•Global value chains+ data sources
Real Effective Exchange Rate
Effective Exchange RateBilateral exchange rates do not move together, so we need some method to summarise the overall strength or weakness of a country’s currency
The nominal effective exchange rate (NEER) is defined as the exchange rate of the domestic currency vis-à-vis other currencies weighted by their share in world trade
• Which currencies?• What weights?• Significance of the base year
REER definitionHow to compute REER?
where, N stands for number of the competitor countries in the reference groupwi is the overall trade weight assigned to the currency iDi and Dj are the deflators for partner country i and country jei,j is the nominal exchange rate of country i in terms of currency of country j
REER - rationale
"REER often been found to be a statistically significant predictor of the incidence of economic crisis" •Balassa-Samuelson effect•Price and cost competitiveness•Thresholds +/-5% for EA, +/-11% non EA
REER for MIPREER computed by EC – DG ECFIN:Real – deflated by HICP, ULC, GDP deflator, export prices, producer pricesEffective – based on bilateral trade (42, 37, EU, EA)ER – X rates vs. USD
Headline indicator 3y % change in REER vs. 42IC; HICP/CPI p.m. y-o-yAuxiliary indicators 3y % change in REER vs. EA; HICP/CPI 10y % change in ULC performance vs. EA based on REER's double export weights
REER - Data sourcesREERs – DG ECFIN; Price and Cost Competitiveness database
Components:• HICP/CPIEurostatInternational Financial Statistics (IMF IFS); OECD• Exchange RatesIMF IFS; ECB; ECFIN (before 1999)• Unit Labor Cost indexes Eurostat• Bilateral TradeIMF - Data on Trade (IMF DoT)• GDP; export pricesEurostat
REER – statistical issues
Bilateralexchangerates
Trade basis
Trade weights
Choice of deflators
Coverage of trading partners
REER – economic interpretationREER vs 42IC; HICP deflated (2000=100)
70
80
90
100
110
120
130
140
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
BE DE
EL ES
FR IT
HU NL
PL PT
UK
Comp. loss
Comp. gain
BE case – cost competitivenessREER for Belgium vs. EA (2005=100)
95
97
99
101
103
105
107
109
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
HICP deflatorNominal ULC, total economyPrice deflator GDP, market pricesPrice deflator, exports of goods and services
REER – conclusion
There is no single “all purpose” REER
•– Difficult trade-offs such as fit vs. quality•– Awareness of statistical engine is crucial
Unit Labour Cost
ULC - rationale
• monitors developments in cost competitiveness across EU MSs
• measures the average cost of labour per unit of output
• rise in an economy’s NULC corresponds to a rise in labour costs that exceeds the increase in labour productivity
ULC – definition (1)
compensation of empl/no. of employees real GDP per person employed
based on Eurostat data from National Accounts
MIP indicator - percentage change over 3 years
Thresholds: +9% for euro-area • +12% non-euro-area
ULC =
ULC – definition (2)
3 auxiliary ULC indicators:Labour productivity – yoy % changeNULC – 10 years % change-Both based on Eurostat National Accounts
ULC based on REER for EA-Source: DG ECFIN
ULC – economic interpretationNULC (2000=100)
95
100
105
110
115
120
125
130
135
140
145
150
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
EU EA BE DE EL ES FR IT CY PT
Hourly labour cost levels in business economy (2014, EUR)
0
5
10
15
20
25
30
35
40
45
DK BE SE LU FR NL FI DE AT EA IE IT EU UK ES CY SI PT MT EE SK CZ HR PL HU LV LT RO BG
wage non-wage
BE case – cost competitiveness
ULC - actions• Quality Adjusted Labour Index• Total hours worked as input measure for analysing labour
productivity changes over time is not adequate = assumes each hour worked has the same quality
• Combining social surveys with NA data
Export Market Shares
EMS – rationale
Three competitiveness indicator:REER CPI deflated – price competitiveness
Nominal ULC – cost competitiveness
Export Market Shares – broader view on competitiveness; export performance that cannot be explained by price developments
• geographical specialisation (trade openness)• sectoral specialisation • product quality and composition
EMS - rationale
• EMS is driven by:• numerator effect• denominator effect
+83% in 1994-2007• multilateral trade liberalisation • unilateral trade liberalisation of some emerging
countries (e.g. China, India and Brazil) • increased trade in services due to development of ICT
EMS – definition (1)•Headline indicator• 5y % change in share of total world exports• p.m. y-o-y
BoP data from Eurostat and IMFThreshold: -6%
•Auxiliary indicators • 5y % change in share of Advanced Economies exports
Eurostat and OECD data• 1y % change in EMS in volume
IMF data
EMS – economic interpretationExport Market Shares in 2014 (5 years % change)
LTLV
ROET
BGPL
SKMT
LUESIE
PTCZ
DENLFR
UKSI
ATSEDKIT
HUCYELHR
FI
BE
-30 -25 -20 -15 -10 -5 0 5 10 15 20 25 30
of world total
of advanced economies
EMS – economic interpretationShare of exports going to EA
30
35
40
45
50
55
60
65
70
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
BE DE IE FR IT NL PT
EMS – economic interpretationEMS goods and services in 2014 (5 years % change)
LVLT
ROBG
ETSK
PLCY
ESPT
CZMT
NL
ELUK
SIIT
DK
ATIE
HUSE
HRLU
FI
BE
DE
FR
-40 -30 -20 -10 0 10 20 30
Goods
Services
Goods ServicesGoods and
Services
BE 1,8 2,4 1,9DE 8,4 6,6 8,0ES 1,7 3,2 2,0FR 3,1 5,2 3,5IT 2,8 2,4 2,7NL 3,0 2,5 2,9PL 1,1 0,9 1,1UK 2,6 6,5 3,3EU28 31,2 43,6 33,7
EMS – statistical issuesExport Market Shares (y-o-y % change)
-10
-5
0
5
10
15
20
CY FI UK CZ MT SE IT IE AT NL DK DE FR EL LV SI EE HR BE SK HU ES BG PL PT LT LU RO
in volume
in current prices
Source: Eurostat; IMF
%
EMS in volume – statistical issues• Change of the source: IMF WEO ->Eurostat NA • Improved harmonization among MSs and with other
MIP indicators (EMS headline indicator; terms of trade)• BE, BG, DK, NL, PT, SE: the whole series differ• for 7 other countries only 1 or 2 values differ• Main causes of discrepancies:
• Source of primary data • Methodology for deriving volumes• Exports of goods only• Length of time series (actual data)
EMS – actions
• BPM6 – EMS limited coverage
• Global Value Chains – mapping international trade• Input-output tables and gross trade• Tradables / non-tradables
BE caseother aspects
BE case – cost competitiveness
BE case – non-cost competitivenessGERD (% of GDP)
1,5
2,0
2,5
3,0
3,5
4,0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
EU BE DE FR NL FI
0,74
0,38
0,46
Doing business
Economy
Ease of Doing
Business Rank
Starting a Business
Dealing with Construction
Permits
Getting Electricity
Registering Property
Getting Credit
Paying Taxes
Denmark 3 29 5 12 9 28 12United Kingdom 6 17 23 15 45 19 15Sweden 8 16 19 7 11 70 37Finland 10 33 27 16 20 42 17Germany 15 107 13 3 62 28 72Estonia 16 15 16 34 4 28 30Ireland 17 25 43 30 39 28 6Lithuania 20 8 18 54 2 28 49Austria 21 106 47 17 26 59 74Latvia 22 27 30 65 23 19 27Portugal 23 13 36 25 27 97 65Poland 25 85 52 49 41 19 58France 27 32 40 20 85 79 87Netherlands 28 28 85 43 30 79 26Slovak Republic 29 68 84 48 5 42 73Slovenia 29 18 71 35 36 126 35Spain 33 82 101 74 49 59 60Czech Republic 36 93 127 42 37 28 122Romania 37 45 105 133 64 7 55Bulgaria 38 52 51 100 63 28 88Croatia 40 83 129 66 60 70 38Hungary 42 55 88 117 29 19 95Belgium 43 20 54 53 132 97 90Italy 45 50 86 59 24 97 137Cyprus 47 64 145 67 92 42 44Greece 60 54 60 47 144 79 66
Global value chains
Breakdown of gross manufactured exports by value added •(% of total, 2009)
•Source: OECD; TiVA
BE – competitiveness assessment
• MIP category 2 • Imbalances, which require monitoring and policy action
• CSR for 2015-2016• Restore competitiveness by ensuring, • in consultation with the social partners • and in accordance with national practices, • that wages evolve in line with productivity
Concluding remarks• Importance of assessing a broad set of factors when
analysing a country’s competitiveness;
• For policy design - analysis has shown how crucial it is to implement structural reforms to boost competitiveness;
• For statistics - further enhancement of the analytical capabilities by providing an appropriate toolbox, including a broader set of indicators;
• How can we improve the current set-up?