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Global Challenges and Local Opportunities: Achievements and
Prospects in the Baltic States Ilmārs Rimšēvičs
Governor, Bank of Latvia
Riga, 12 October 2011
The small economies of the European Union that have introduced the euro suffered less during the crisis
5.2
6.7
4.4
-4.4
2.3
8.9 8.3
0.5
-13.1
0.9
-15
-10
-5
0
5
10
2006 2007 2008 2009 2010
Cyprus, Malta, Slovakia and Slovenia
Baltic States and Bulgaria
GDP growth (average per group of countries; %)
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Estonia Latvia Investment-grade ratingSource: Bloomberg.
At this stage Estonia is seven steps ahead of us in terms of soundness, measured by credit rating
S&P ratings of sovereign long-term liabilities AA AA- A+ A A-
BBB+ BBB BBB- BB+ BB BB- B+
AA AA- A+ A A-
BBB+ BBB BBB- BB+ BB BB- B+
Estonia has also received a considerably larger inflow of foreign direct investment
3578.4
4041.8
8780.99685.0
0.0
2000.0
4000.0
6000.0
8000.0
10000.0
12000.0
2008 Q4 2011 Q2
In Latvia
In Estonia
Sources: Latvijas Banka, Eesti Pank, Eurostat.
Accumulated foreign direct investment per capita (EUR)
Better unemployment rates in Estonia also reflect it
11.8
7.4
5
10
15
20
2010 I IV VII X 2011 I IV VII
Latvia Estonia
Registered unemployment (% of economically active population)
Sources: State Employment Agency , Estonia's State Employment Agency.
Higher labour productivity results in better
remuneration in Estonia: average monthly gross wages and salaries in Estonia = 821 EUR, in Latvia = 664 EUR
300
400
500
600
700
800
900
2005
Q1
Q3
2006
Q1
Q3
2007
Q1
Q3
2008
Q1
Q3
2009
Q1
Q3
2010
Q1
Q3
2011
Q1
Estonia Latvia
Sources: Central Statistical Bureau of the Republic of Latvia, Statistikaamet.
Average monthly gross wages and salaries (EUR; seasonally adjusted data)
Average old-age pensions are 42 EUR lower in Latvia (305 EUR and 263 EUR respectively )
140
180
220
260
300
340
2007
Q1
Q3
2008
Q1
Q3
2009
Q1
Q3
2010
Q1
Q3
2011
Q1
Estonia Latvia
Sources: State Social Insurance Agency, Statistikaamet.
Average old age pension, EUR
Global economic outlook starts aggravating considerably
-40
-30
-20
-10
0
10
20
I'06 VI
XI
IV
IX
II
VII
X
II
V
X
III
VII
I I'1
1 VI
EU industrial confidence Euro area industrial confidence Latvia's industrial confidence
Industrial confidence indicator in Europe
30
35
40
45
50
55
60
65
2008
'I IV
VII
X
20
09'I IV
V
II
X
2010
'I IV
VII
X
20
11'I IV
V
II
Germany Euro area UK US
Industrial PMI (50 = neutral)
Growth forecasts for global economies are downsized
GDP growth, %
* GS Global ECS Research.
-6
-4
-2
0
2
4
6
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011*2012*
Euro area 0.1Germany 0.6France 0.2Italy -0.4Spain -0.4
Planning the state budget with a deficit during the years of rapid growth led to a deep fiscal crisis during the years of
economic downslide Consolidated general government budget surplus/deficit, % of GDP (EAS 95)
-4.2
-9.7
-7.7
-4.6
-12.0
-10.0
-8.0
-6.0
-4.0
-2.0
0.0
2.0
2004 2005 2006 2007 2008 2009 2010 2011 2012
Planned Actual (2011 – base forecast)
Latvia at the crossroads
Failing to introduce the euro and improve credit ratings may cost almost a billion lats from the budget in the
next 10 years Additional annual interest payment in case we fail to introduce the euro and continue to
borrow and refinance the debt in the financial market (in millions of lats)
17 33
50
78
103 107 111 121
132 136
0
20
40
60
80
100
120
140
160
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
In 10 years it will cost us almost one billion lats more
13