Latvia is no longer the third-poorest country in the EU!
It is now only fourth from the bottom but this is due to Croatia’s entry into the EU a few days ago and Croatia is a tad behind Latvia so no real reason for celebration…
Rather, it might be time for a little bit of concern. The Latvian economy left recession in mid-2010 and has since grown quite briskly, see Figure 1; it even regained the position of the fastest growing economy of the European Union although that doesn’t say much these days. Recent data points to a slowdown, however.
Figure 1: Latvian growth rates, quarterly data, 2010 – 2013
Source: Central Statistical Bureau of Latvia
What brought Latvia out of recession was a very strong export performance and what is slowing the economy now is a seeming slowdown in exports, see Figure 2.
Figure 2: Growth of exports, quarterly data, 2010 – 2013
Source: Central Statistical Bureau of Latvia
And unfortunately that is not all that surprising – it should be closely linked to Figure 3, which I consider the perhaps most worrisome slide for Europe at the moment. While the Eurozone and USA tracked each other quite well before and during the recession, development for the past couple of years displays decoupling. The American economy is growing again, not impressively but growing, while the Eurozone is entering a double-dip recession.
Figure 3: GDP in the Euro area and USA, 2005 = 100
Source: Eurostat
Since Latvia’s economy is so export-oriented this will obviously have repercussions here, thus expect slower growth to continue.
Austerity implied a very – very! – deep and painful recession in Latvia but also a relatively short one and the country, although in some ways still reeling, has seen economic growth for longer than the recession lasted and, more importantly, sustainably so – no serious budget deficit, no serious trade deficit, no inflation to speak of etc.
But austerity in many other parts of Europe/the Euro area must be judged a failure – its negative impact on many economies just drags on and on and although competitiveness and trade balances have improved in several countries, government budget balances are still shaky.
And with that all of Europe suffers – the countries that are in recession as well as their trading partners, including Latvia. Hmm!
P.S. Just to be on the safe side: This is of course neither an argument for nor against euro adoption – Latvia will have the same trading partners whether inside or outside the Eurozone and the impact on the economy will thus be similar whether inside or outside.
Morten Hansen is Head of Economics Department at Stockholm School of Economics in Riga
Komentāri (19)
loptik 04.07.2013. 17.03
One should note, however, that this ‘austerity’ in Europe was never implemented. They started, but then chickened out… i.e. the hypothesis ‘austerity did not work’ cannot be disentangled from a hypothesis ‘weak implementation of austerity measures (indecisive austerity) did not work’. When we speak about failure or success of austerity in Europe it is purely our belief-based choise. Nothing new in the science of economics.
Of course, a different issue is that some international and less international institutions expected a ‘growth-enhancing austerity’/’austerity with little negative growth effect’ or that kind of BS. But that is their problem, their frequent errors prove very little.
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dzerkaleliva > loptik 06.07.2013. 19.03
Jā, tas sakarā ar to pašu, droši vien arī bāzes efekts un nepietiekama taupība.
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LATVIA EMPLOYED PERSONS
http://www.tradingeconomics.com/latvia/employed-persons
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dzerkaleliva > loptik 06.07.2013. 18.50
Diez ko šis grafiks saka par Latvijas ražošanu?
http://www.tradingeconomics.com/latvia/industrial-production
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dzerkaleliva > loptik 06.07.2013. 18.55
Un diez ko šis grafiks saka par – One should note, however, that this ‘austerity’ in Europe was never implemented.
http://www.tradingeconomics.com/latvia/population
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kreëstliv > loptik 04.07.2013. 23.27
Vai tad Juus pie vinjiem nestraadaajiet, ka sauciet vinju secinaajumus pr BS ar frequent errors? Nav mazliet par augstpraatiigu? Vai kaarteejais – mees esam gudri, stpri utt.?
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Dzintars 04.07.2013. 14.52
I am not in any way or form a big expert on Croatia but in terms of GDP per capita the two countries are very close: Latvia at 62 and Croatia at 61 with the EU average being 100. But unemployment in Croatia is quite a bit higher than in Latvia (16.8% against 12.8%) due to some years of recession. This in itself is consistent with that wages can be higher in Croatia but GDP per capita lower due to relatively fewer people working.
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Andis Cēsnieks 05.07.2013. 11.50
May GDP y-o-y growth decline in Latvia be driven simply by a base effect (2012 Q1 growth was exceptionally high at +7.0%)? As for me, q-o-q growth seems to be quite stable at 1.4%: http://www.csb.gov.lv/notikumi/iekszemes-kopprodukts-2013gada-pirmaja-ceturksni-palielinajies-par-36-36467.html
Actually I wonder about how robust economic growth in Latvia is (and not why it is decoupling). In Q2 2013 we may see some decoupling of q-o-q growth rates subject to the “Liepājas Metalurgs” problems, which, perhaps, are primarily based on stakeholders’ relations, not on macro fundamentals or global demand slowdown.
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@dzerkaleliva > Andis Cēsnieks 06.07.2013. 19.29
Pie mūsu izmiršanas ātrumu, kurš arvien paātrinās mums ir atlikuši 30-50 gadi. Ko mēs darīsim jau pēc 10-15 gadiem, ar savu valsti un ekonomiku? Jā tā tik ilgi noturēsies, par ko ir stipri jāšaubās. Nejūtaties nemaz vainīgi, ne? Diez, kuram tad jājūtas, ja ne politiķiem un baņķieriem?
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dzerkaleliva > Andis Cēsnieks 06.07.2013. 19.07
Vispār, laikam jau, kamēr te kāds cilvēks Veiksmlandē būs palicis un kamēr valsts nebūs pilnīgi sagrauta jums (Vienotībai, Latvijas Bankai un parējiem Veiksmlandes idealogiem un lietu bīdītājiem) miera nebūs.
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Paskatoties jebkurus Latvijas ciparus un salīdzinot tos ar citām valstīm. Īpaši ar te bieži apņirgtajām, nekas vairāk kā nožēla par mūsu stāvokli nepārņem. Zemāk mums nav vairs kur krist savā atkarībā un aklu ideoloģisku konceptu ieviešanā. Laikam neviens savai valstij vēl nekad nav nodarījis tik daudz ļauna cik Latvijas banka un tās darboņi. 1000 Lembergi un Šķēles kopā to nespēj.
http://www.tradingeconomics.com/latvia/indicators
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