Transcript Robust recovery under way - prospects for the polish economy

Yes, the long term outlook is good, but…
- Outlook for the Estonian economy
Lars Christensen
Senior Analyst, Head of New Europe Research
+ 45 45 12 85 30 (direct)
+ 45 40 74 49 51 (mobile)
[email protected]
Danske Research, Danske Bank
www.danskebank.com/danskeresearch
Investment Research
January 2008
Agenda
•
A look at the good stories
•
Some key long term challenges – the short version
•
Outlook for growth in the coming years
•
Macro prudential indicators – a “traffic light analysis”
2
Richer – impressive Estonian growth performance
1996
GDP per capita, r elative to Ger many
2006
0.90
0.70
0.50
Por tugal
Gr eece
Slovenia
Slovakia
Romania
Poland
Lithuania
Latvia
Estonia
Czech
Bulgar ia
0.10
Hungar y
0.30
3
Denmar k
Por tugal
Gr eece
Slovenia
Slovakia
Romania
Poland
1996
2007
Lithuania
Latvia
Hungar y
Estonia
Czech
Bulgar ia
Freedom is wonderful
Fr eedom Index
80
70
60
50
40
30
4
0
Denmar k
Por tugal
Gr eece
Slovenia
Slovakia
Romania
Poland
Lithuania
Latvia
Hungar y
Estonia
10
Czech
Bulgar ia
Less corrupt
Cor r uption Index
1998
2006
8
6
4
2
5
65
Por tugal
Gr eece
Slovenia
Slovakia
Romania
Poland
Lithuania
Latvia
Hungar y
Estonia
80
Czech
Bulgar ia
Living longer
Life expectancy at birth
1990
2004
75
70
6
Less child mortality, but still some way to go
Under-five mortality rate (per 1000)
1990
2003
31
26
21
16
11
6
Portugal
Greece
Slovenia
Slovakia
Romania
Poland
Lithuania
Latvia
Hungary
Estonia
Czech
Bulgaria
1
7
Portugal
PC- and internet users (per 1000)
Greece
Slovenia
Slovakia
Romania
Poland
Lithuania
Latvia
Hungary
Estonia
Czech
Bulgaria
More high-tech than anybody
PC
Int ernet
800
550
300
50
8
Some key long term challenges – the short version
•
Two key challenges:
•
Negative demographics
•
Don’t become “too Scandinavian”
9
Fewer hands to pay for the fun in the future
W orking age population (% of total population)
90
85
80
75
70
65
60
2049
2047
2045
2043
2041
2039
2037
2035
2033
2031
2029
2027
2025
2023
2021
2019
2017
2015
2013
2011
2009
2007
2005
2003
2001
1999
1997
55
10
Where are all the men?
1.18
W omen-to-men ratio
percent
1.16
Estonia
1.16
1.14
1.14
1.12
1.12
1.10
1.10
1.08
1.08
EU2 7
1.06
1.04
94
percent
1.18
1.06
1.04
96
98
00
02
04
06
.
11
Don’t become “too Scandinavian”
Estonia’s free market policies have
served the country well, but there is
a risk that Estonia (and especially
Estonian politicians) is learning a bit
too much from Scandinavia and
increasingly is focusing on
expanding the ”welfare state”
• This could hamper long term growth
•
12
Promises, promises…
•
President Toomas Hendrik Ilves:
“Moreover, we wish and need to pay
our employees better, and ensure
our elderly with a better pension.”
13
Outlook for growth in the coming years
•
Growth will slowdown further
because of:
•
A need to address imbalances in the
economy
•
Negative shocks
14
Huge imbalances and rising inflation
percent
M ia.
0 EEK
C/ A as a share of GDP - %
-5
-5
-10
-10
-15
-15
-20
-20
-25
-25
-30
-30
Publications.Figurbibliotek
00
01
Estonia
02
03
Latvia
04
05
06
07
Lithuania
.
15.0 % y/ y
12.5
10.0
7.5
5.0
2.5
0.0
-2.5
00
% y/ y
01
Estonia
02
03
Latvia
04
05
06
15.0
12.5
10.0
7.5
5.0
2.5
0.0
-2.5
percent
Inflation
percent
Spurred by favourable external
conditions – buoyant global
growth, easy monetary
conditions and a lot of risk
appetite – there are signs that
the Baltic economies have been
growing too quickly
• Following the prolonged
economic boom, there are now
mounting imbalances in the
Baltic economies
• This is visible in the acceleration
of C/A deficits and rising
inflationary pressures
percent
0
•
07
Lituania
.
15
Bottlenecks are mounting in factor markets
10.0
7.5
7.5
5.0
% of labour force
0
98
99
00
Estonia
01
02
03
Latvia
04
05
06
07
30
25
Nominal wage growth
20
20
15
15
5.0
10
10
2.5
5
5
0
percent
2.5
percent
10.0
% y/ y
% y/ y
25
percent
12.5
30
0
0
00
Lithuania
.
percent
% of labour force 17.5
15.0
12.5
percent
percent
17.5 % of labour force
15.0
01
Estonia
02
03
Latvia
04
05
06
07
08
Lithuania
.
16
History tells us that growth will slow
•
•
•
What happens to
growth when the
current account
worsens by 5%
of GDP in two
years?
A minor eventstudy of OECDcountries
14 examples
% GDP growth relative to "boom years"
1 .0
0 .5
0 .0
-2
-1
0
1
2
3
-0 .5
-1 .0
-1 .5
-2 .0
-2 .5
17
The negative shocks
•
Growth has been buoyant but four factors
are set to slow growth – potentially
significantly – in the coming year:
•
Inflation has spiked dramatically
• Credit conditions have been tightened
• Asset prices have peaked
• Global slowdown
18
The nasty cocktail
– higher inflation and tighter credit conditions
Change in 3 mths. Rates (bp) since January
2007
700
Kazakhstan
600
500
Latvia
400
Lithuania
300
200
100
0
Slovenia
Bulgaria
Estonia
Poland
Czech Rep.
Russia
Romania
Ukraine
Slovakia-100
Hungary
0
-2
2
4
6
8
10
Change in inflation percentage points since January 2007
19
150 Index = 1 0 0 , Jan 2 0 0 7
140
Performance va Euro Zone,
130 STOXX, Broad Index
120 in...
110
100
90
80
70
Jan
Mar
May
Jul
07
Bulgaria
Romania
Lithuania
Latvia
Estonia
Sep
Nov
150
140
130
120
110
100
90
80
70
percent
percent
Asset prices are moving south
Jan
08
.
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A Traffic Light analysis for EU8+2
•
•
We have taken a look at 10 macro prudential indicators for the EU8+2
The indicators are:
•
•
•
•
•
•
•
•
•
•
Unsustainable GDP growth
Inflation
Current account situation % GDP
Credit to GDP ratio
Credit growth
FX reserves to import ratio
Exports to imports ratio
Short-term debt/FX reserves
Real interest rates
Public finances
Source: “A Warning not to be ignored II”, December 14 2007
21
Latvia
Estonia
Reason for concern
Lithuania
Bulgaria
Romania
Hungary
Czech Rep.
Sustain-able
zone
Poland
Slovakia
Slovenia
More red than ever
Danger Zone
22
Estonian growth slows dramatically
GDP growth
Overheating
Hot
Room for
improvement
% y/ y
14
12
10
8
6
4
2
Hungary
Romania
Slovenia*
Czech
Republic
Estonia
Poland
Bulgaria*
Slovakia
Lithuania
Latvia
0
Source: Ecowin
Note: Figures are from Q3-07, blue line shows data from Q3-06. * Numbers are from Q2-07.
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Inflation – take a look at this!
Inflation
% y/ y
Unsustainable
16
Cool down - now please!
14
12
10
8
6
4
2
Slovakia
Poland
Czech
Republic
Slovenia
Romania
Hungary
Lithuania
Estonia
Bulgaria
Latvia
0
Source: Ecowin
Note: Figures are from November 2007, blue line shows data from year-end 2006.
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Current account – Its getting worse
Czech
Republic
Poland
Slovenia*
Slovakia
Hungary*
Lithuania
Romania
Estonia
% of
GDP
Bulgaria*
Latvia
Current account balance
0
-5
-10
-15
-20
-25
-30
Take cover!
Unsustainable
Healthy
Source: Ecowin
Note: Figures are from Q2 2007 and is calculated over the previous 12 months, blue line shows
value by Q3 2006. * Numbers are from Q2 2007.
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Credit growth – a few improvements visible
Growth rate of credit to the private sector
% y/ y
70
60
50
40
30
20
10
Hungary
Czech
Republic
Slovakia
Poland
Bulgaria
Lithuania
Estonia
Romania
Latvia
0
Source: W orld Bank, Regular Economic Report, September 2007
Note: Credit growth is measured Q1-07, blue lines are from Q3-06. Slovenia was taken out of the
analysis from 2007 - W e have implicitly given Slovenia a green value.
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The market impact of imbalances
Change in 3 M money market rates since Jan 1 , 2 0 0 7 versus
ranking from February 2 0 0 7
660
Estonia
335
Lithuania
333
percent
Slovakia
25
-40
-2.5
Poland
151
-5.0
-7.5
Jan
7.5
EUR/ PLN
EUR/ SKK
0.0
151
Source: EcoW in and own calculations
Note: Money market rates from December 11 and January 1 2007 have veen used. Slovenia has
been left out of this chart.
EUR/ CZK
2.5
Czech Rep.
Hungary -58
10.0
5.0
260
Bulgaria
Romania
10.0 Change since Jan 2 0 0 7 - %
7.5
EUR/ HUF
EUR/ RON
5.0
2.5
0.0
percent
Bp
Latvia
-2.5
-5.0
-7.5
Mar
May
Jul
07
Sep
Nov
Jan
Mar
08
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