Transcript Slaid 1 - Tartu linn

Hardo Pajula
Estonian economy:
Autumn 2007
1
Analytical framework
Output and income growth
Labour market
Competitiveness
Balance of payments
Money supply and credit
Interest rates and asset prices
Capital account
Exchange rate
Inflation
David Hume
All water. wherever it communicates.
remains always at a level. Ask naturalists
the reason; they tell you. that. were it to
be raised in any one place. the superior
gravity of that part not being balanced.
must depress it.
2
The watershed
180
12
10
8
150
140
6
130
Latvian devaluation rumours start to go
around
4
120
2
110
Swedbank
SEB
RIGIBOR 6 months
09.07
08.07
07.07
06.07
05.07
04.07
03.07
02.07
01.07
12.06
11.06
10.06
09.06
08.06
0
07.06
100
RIGIBOR, In percent
160
06.06
Share prices, Index 13.6.2006 = 100
170
In the second half of this February rumours about an imminent devaluation of Latvian
currency
drove
interbank
rates from 4.5 to 9 percent
and pushed the lat to touch its
upper boundary.
In the following two weeks the
share prices of Swedbank and
SEB fell by 12 and 9 percent
respectively, reflecting the
worries about their exposure
to Baltic credit boom.
3
30
14
20
12
10
10
8
07.07
04.07
01.07
10.06
07.06
-10
04.06
0
01.06
Freight turnover: 12-month growth rates, %.
“Bronze night” takes toll on
confidence
6
4
-20
"Bronze night"
-30
2
0
-40
-2
-50
-4
Freight turnover
Consumer confidence
The images of shattering
shop-windows which under
other circumstances might
have shaken off as a minor
disturbance seem to have had
in this phase of the cycle a
more damaging impact. Its
impact on transit and inbound
tourist flow has been equally
distructive.
4
“Fear index” on the rise
50
45
40
35
25
Sharply
increased
riskaversion will make it harder
for parents to raise money.
20
15
10
5
01.07
01.06
01.05
01.04
01.03
01.02
01.01
01.00
01.99
01.98
01.97
01.96
01.95
01.94
01.93
01.92
01.91
0
01.90
VIX, %
30
The boom was predicated on
the transfer of cheap funds
from the core to perihery.
Historically, the problems at
the core tend to be amplified
in the peripheries.
5
Key factor: Animal spirits
“Even apart from the instability due to
speculation, there is the instability due to the
characteristic of human nature that a large
proportion of our positive activities depend
on spontaneous optimism rather than
mathematical expectations … Most, probably, of
our decisions to do something positive, the full
consequences of which will be drawn out over
many days to come, can only be taken as the
result of animal spirits – a spontaneous urge
to action rather than inaction, and not as the
outcome of a weighted average of quantitative
benefits multiplied by quantitative probabilities.”
John Maynard Keynes on long-term
expectations
Entrepreneur from Africa
6
-2
GDP
-4
12.06
12.05
12.04
12.03
12.02
12.01
12.00
12.99
12.98
12.97
12.96
12.95
12.94
Rolling year growth rate, %.
14
12
8
6
80
4
60
2
Economic sentiment.
Growth and economic sentiment
140
120
10
100
40
0
20
0
Economic sentiment
7
Investment
Domestic demand
Export
Import
12.06
12.05
12.04
12.03
12.02
12.01
12.00
12.99
12.98
12.97
12.96
12.95
12.94
Rolling year growth rates, %.
Aggregate demand and its
components
40
30
20
10
0
-10
-20
GDP
8
Output
-5
-10
12.06
12.05
12.04
12.03
12.02
12.01
12.00
12.99
12.98
12.97
12.96
Rolling year growth rate, %.
20
15
10
15,0
5
10,0
0
Confidence indicator.
Industrial output and
confidence
30,0
25,0
20,0
5,0
0,0
-5,0
Confidence
9
-10
Exports
-20
12.06
12.05
12.04
12.03
12.02
12.01
12.00
12.99
12.98
12.97
12.96
Rolling year growth rate, %.
60
30,0
50
20,0
40
10,0
30
0,0
20
-10,0
10
-20,0
0
-30,0
Order books indicator.
Exports and order books
-40,0
-50,0
Order books
10
Output
-20
-30
12.06
12.05
12.04
12.03
12.02
12.01
12.00
12.99
12.98
12.97
12.96
12.95
Rolling year growth rate, %.
40
30
20,0
10
0,0
0
-20,0
Confidence indicator.
Construction output and
confidence
60,0
40,0
20
-10
-40,0
-60,0
Confidence
11
Retail sales and consumer
confidence
25
20,0
15
-10,0
10
-20,0
5
-30,0
Retail
12.06
12.05
12.04
12.03
12.02
12.01
-40,0
12.00
0
12.99
Rolling year growth rate, %.
0,0
Consumer confidence.
10,0
20
Consumer confidence
12
Unemployment
Employment growth
-10
12.06
12.05
12.04
12.03
12.02
12.01
12.00
12.99
12.98
12.97
12.96
12.95
12.94
Rolling year rates, %
15
20
5
10
0
0
-10
Unemployment expectations.
Labour market
40
30
10
-5
-20
-30
Expectations
13
12.01
HCPI
Nominal wage
12.06
12.05
12.04
12.03
12.02
12.00
12.99
12.98
12.97
Rolling year growth rates, %.
Prices and wages
25
20
15
10
5
0
Real wage
14
Rolling year ratios to GDP, %.
-5
-15
-20
Financial account
FDI
12.06
12.05
12.04
12.01
12.03
-10
12.02
Current account
12.00
12.99
12.98
12.97
12.96
12.95
12.94
12.93
Balance of payments
25
20
15
10
5
0
15
-10
Corporates
04.07
04.06
04.05
04.04
04.03
04.02
04.01
04.00
04.99
04.98
Twelve-month growth rates, %.
Credit growth
80
70
60
50
40
30
20
10
0
-20
Individuals
16
Stock prices
Real estate
-100
200
7
100
6
5
50
4
0
3
3-month TALIBOR, end of period
06.07
06.06
06.05
06.04
06.03
06.02
06.01
06.00
06.99
06.98
Four-quarter growth rates, %.
Interest rates and asset prices
9
8
150
2
-50
1
0
TALIBOR
17
Main findings
 Current statistics tells the story of a strong growth which in reality




has already passed.
The leftover growth we do see is skewed heavily towards
domestic demand which is particularly susceptible to abrupt
changes in the expectations of residents – the animal spirits
argument.
As the persistent flow of bad news makes expectations to shift,
domestic demand will fall (possibly rapidly) in the second half of
this year.
To the extent it does, we are going to see a process of unwinding
of accumulated imbalaces with inflation and wage growth coming
down and external balance narrowing.
In this different environment the expectations formation
becomes once again a key issue. Deeply ingrained inflationary
expectations could set fixed exchange rate under intense
pressure.
18