Macro outlook for or what to expect when you re expecting?

Transcription

1 Macro outlook for or what to expect when you re expecting? Mārtiņš Kazāks Deputy Group Chief Economist Chief economist in Latvia Swedbank April 215

2 Global outlook : it is getting better but do keep in mind the hefty dose of painkillers and steroids Source: Author: Gatis Šļūka

3 Global growth: still patchy, but the worst seems to be behind us and this brings good opportunities for Baltic exporters 15 Annual GDP growth, % Germany UK Sweden USA France Finland Italy Russia China India Source: Reuters Ecowin -15 3

4 Euro area: cheap oil, cheap euro, and low (negative?!) interest rates to boost its short term recovery yet, its long term health still to depend on structural quality and strength Annual wage growth and unemployment in euro area, % Interbank rates, 3 month fixing, % EURIBOR (EUR) STIBOR (SEK) LIBOR (USD) Unemployment rate (rs) Source: Reuters Compensation per employee Ecowin Source: Reuters Ecowin 4

5 Do we finally see the forest behind the trees? global growth to inch up, but still heavily reliant on policy support with significant upside and downside risks, i.e. remain vigilant Annual GDP growth ( ), % 9 Risk scenarios as of January 215 (probability, %) Better; 2 Worse; 2 Base; 6-1 US Euro area China Japan United Kingdom World -3 Source: Reuters Ecowin, Swedbank forecasts (January 215) Source: Swedbank forecasts (January 215) 5

6 Russia: cheap oil, cheap rouble, and financial stress it will only get worse with the current policies the contraction is set to be sharp and deep, and unlikely to end before late 216 Annual growth of GDP components, % Source: Author: Gatis Šļūka GDP (rs) Investments Households Exports Imports Source: Ecowin -12 6

7 Russia: the good, the bad, and the ugly broken growth engine is a massive institutional problem, but the Russian public seems not to mind it major risks are political, not economic GDP and oil price Putin's approval and assesment of economic situation, % 11 Elected as a president Nominal GDP, USD bn Brent, end of period, USD (rs) Source: Reuters Ecowin Appointed Ukraine crisis Prime minister Putin's approval, % Consumer confidence index Source: Economic optimism index (rs) Levada Centre 7

8 Baltic outlook : in search for exports... whatever you do, think of how to boost productivity! 8 Source: Author: Gatis Šļūka

9 GDP growth has slowed: consumption remains robust, but exports are weak and investment is too low to support fast future growth; ca 2% growth is too slow for the Baltics GDP, exports, household consumption, and investments, annual growth (%) 6 Estonia Latvia Lithuania GDP Exports Household consumption Investments (w/o inventories) Source: Reuters EcoWin 9

10 Enduring love, wrong partner: exports to Russia to fall big time, but there are good opportunities in other markets Annual growth of goods exports, 3M average (%) 8 6 Estonia Latvia Lithuania Total To RU Total To RU Total LT origin, total To RU -4 LT origin, to RU

11 Labour markets: employers between the rock and the hard place, i.e. the name of the game is productivity Labour market indicators, % 25 2 Estonia Latvia Lithuania Unemployment rate Real gross wage growth FTE productivity growth Source: Reuters 11

12 Vacancy rate, % Labour markets: employers between the rock and the hard place, i.e. the name of the game is productivity Beveridge curve 4 Estonia Latvia Lithuania 4 3 1Q Q 6 1Q Q 14 1Q Q 8 3Q 14 1Q 5 1Q Q 4Q Unemployment rate, % Source: national statistics 12

13 Baseline scenario : slow growth, low inflation, slow decrease in unemployment about 2% GDP growth is way too slow for the Baltics Macroeconomic indicators f 216f Real GDP, annual change in % Estonia Latvia Lithuania Unemployment rate, % of labour force Estonia Latvia Lithuania Inflation, % Estonia Latvia Lithuania Real net monthly wage growth, % Estonia (e) Latvia Lithuania * (e) stands for estimate Sources: National statistics and Swedbank January 215 forecast 13

14 What about the long run? how to boost productivity and what happens when it happens? I have taken too many years off my schooling Author: Gatis Šļūka, Source: 14

15 Demographics: ageing, low birth rates and emigration they all put pressure on the welfare state (think: benefits, pensions, and taxes) and the social fabric of our societies Population projections, age % 2 5-1% 2-2% 1 5-3% 1-4% 5-5% Estonia, thousand persons (rs) Latvia, thousand persons (rs) Lithuania, thousand persons (rs) Estonia (change from 213) Latvia (change from 213) Lithuania (change from 213) Source: Eurostat 15

16 Labour markets: no time to spare for wages to rise but they can do so only in line with productivity Gross average income per employed in 212, % from level in Latvia Note: the darker the colour, the higher the income Source: Eurostat, Swedbank calculations 16

17 Productivity needs investments: are companies investing wisely? Fear Keep the business Fact Extend the known Faith Experiment 17

18 Productivity needs investments: and if they do, do they innovate? Steve Sasson with his developed first digital camera at Kodak in

19 OK, imagine that we have grown productivity: who gains from productivity growth, i.e., winners and losers? Hourly average wage, men, USA, by education (211 USD) % change Dropout % High School % College % Advanced Degree % Source: Moretti (213). Data include all full-time workers aged

20 Digitalisation: job destruction and the winner takes it all? 2

21 Digitalisation: the case of Uber and The Empire strikes back can it get better than that? 21

22 Digitalisation: and Uber is here! 22

23 Digitalisation: how linear is non-linear? Can you forecast it? Linear vs exponential growth Think of Moore s law and let us double each step, i.e., 1, 2, 4, 8, Linear Exponential Periods and now compare linear 3 steps vs. non-linear steps! 23

24 Digitalisation: have you thought of 3D printing? 24

25 Back to now: is the Baltics a success story? GDP per capita (adjusted for purchasing power), % of Germany Lithuania Estonia Latvia Source: World Bank 25

26 Back to now: is the Baltics a success story and now? But going gets more difficult as we have reached a mid-life crisis GDP per capita (adjusted for purchasing power), % of Germany Lithuania Estonia Latvia Armenia Czech Republic Greece Hungary Poland Portugal Source: World Bank 26

27 So what? If you don t have a competitive advantage don t compete /J.Welch/ It is about skills and investment You can not only keep slashing expenditure, you must rethink processes 27

28 The Future Is All About Your Own Ambition! 28

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