Eesti PankBank of Estonia

Effects of the global crisis and euro on Estonia

Ülo Kaasik

Ülo Kaasik Effects of the global crisis on Estonia 2

Eesti PankBank of Estonia

Estonia was hit hard by the crisis – global crisis on top of the domestic correction

Ülo Kaasik Effects of the global crisis on Estonia 3

Eesti PankBank of Estonia

Confidence fell rapidly due to regional problems, recent events have less implication

Ülo Kaasik Effects of the global crisis on Estonia 4

Eesti PankBank of Estonia

Shock on exports have been similar across the region

Ülo Kaasik Effects of the global crisis on Estonia 5

Eesti PankBank of Estonia

Exports have started to grow along with the global recovery

Ülo Kaasik Effects of the global crisis on Estonia 6

Eesti PankBank of Estonia

Still lot of capacity not utilised

Eesti PankBank of Estonia

Sharp reaction in labour market

Ülo Kaasik Effects of the global crisis on Estonia 8

Eesti PankBank of Estonia

Reaction has been sharp in labour market – in terms of employment and wages

Ülo Kaasik Effects of the global crisis on Estonia 9

Eesti PankBank of Estonia

Participation rate has stayed high

Ülo Kaasik Effects of the global crisis on Estonia 10

Eesti PankBank of Estonia

But unemployment is probably structural

Ülo Kaasik Effects of the global crisis on Estonia 11

Eesti PankBank of Estonia

Boom time jobs have vanished

Eesti PankBank of Estonia

Financial sector has survived it well

Ülo Kaasik Effects of the global crisis on Estonia 13

Eesti PankBank of Estonia

Non performing loans have stabilised

Over 60 days overdue loans to total portfolio

0%

2%

4%

6%

8%

10%

12%

14%

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

üle 60 p viivises olevate laenude osakaal

2009 sügisprognoos ( põhistsenaarium)

maksimaalne võimalik suhtarv 10% kapitaliadekvaatsuse juures

Ülo Kaasik Effects of the global crisis on Estonia 14

Eesti PankBank of Estonia

Banks behaviour is very cautious

Eesti PankBank of Estonia

Domestic demand is still sluggish and domestic inflation pressures low

Ülo Kaasik Effects of the global crisis on Estonia 16

Eesti PankBank of Estonia

Confidence indicators are improving

-80-60-40-20

020406080

2005 2006 2007 2008 2009 2010

Consumers Manufact Constr Retail trade Services

Ülo Kaasik Effects of the global crisis on Estonia 17

Eesti PankBank of Estonia

We expect gradual improvement in domestic demand

Ülo Kaasik Effects of the global crisis on Estonia 18

Eesti PankBank of Estonia

CAD has reversed, probably cyclical phenomenon

Ülo Kaasik Effects of the global crisis on Estonia 19

Eesti PankBank of Estonia

Inflation development driven by foreign prices

Eesti PankBank of Estonia

Government has reacted sharply

Ülo Kaasik Effects of the global crisis on Estonia 21

Eesti PankBank of Estonia

But still some work to do

Ülo Kaasik Effects of the global crisis on Estonia 22

Eesti PankBank of Estonia

Some conclusions• Economy and policies have reacted quickly to

the crisis. Majority of the adjustment is probely over.

• Many challenges still ahead:

– What are the implications of the debt crisis in Europe

– How to avoid structural unemployment?

– Is financial system supporting the recovery enough?