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The Baltic States: Recovery, Outlook, and Challenges

The Baltic States: Recovery, Outlook, and Challenges. “Economic Crossroads: From Recovery to Sustainable Development in the Baltic States and the EU” Riga, November 24, 2011 Mark Allen Senior IMF Resident Representative for Central and Eastern Europe

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The Baltic States: Recovery, Outlook, and Challenges

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  1. The Baltic States: Recovery, Outlook, and Challenges “Economic Crossroads: From Recovery to Sustainable Development in the Baltic States and the EU” Riga, November 24, 2011 Mark Allen Senior IMF Resident Representative for Central and Eastern Europe The views expressed in this Presentation are those of the author and do not necessarily represent those of the IMF or IMF policy.

  2. Scope of the presentation • Recovery in the Baltic States • Outlook beyond the Baltic States • Vulnerabilities to tackle

  3. Scope of the presentation • Recovery in the Baltic States

  4. GDP has recovered to 2005/6 levels … GDP level (2004 = 100) Source: WEO database.

  5. …but domesticdemand is lagging… Domesticdemandlevel (2004 = 100) Source: WEO database.

  6. … although now contributing to growth. Contributions to Growth (percent points) Source: WEO database

  7. Exports are gaining market shares. Export markets growth (Weighted by 2007 export patterns) Estonia Latvia Lithuania Source: IMF, Direction of Trade; World Economic Outlook; Eurostat

  8. There has been some correction in wages... Average Gross Earnings (Mar-04=100) Source: Haver; IMF Country Reports

  9. …and unemploymentis falling from the peak. Unemploymentrate (percent) Source: IMF, IFS

  10. Market perceptions have improved remarkably. CDS spreads (basis points) Source: Bloomberg

  11. Scope of the presentation • Recovery in the Baltic States • Outlook beyond the Baltic States

  12. The world economic recovery is sluggish… GDP Growth (percent) Source: WEO database.

  13. …and world trade is not looking healthy. Growth of Trade (percent) *Trade volume is calculated from the trade value deflated by CPB estimated price series Source: WEO database.

  14. Advanced economy prospects have worsened sharply. WEOForecasts Consensus GDP Growth Forecasts for 2012 (percent) Source: ConsensusForecasts.

  15. A thirdwave of fearhas hit the markets… Lehman Greece Eurozone Market VolatilityIndex (VIX S&P 500) Source: Yahoo Finance.

  16. …and European banks are under pressure. Banks’ 5yr CDS Spreads (basispoints) Source: Bloomberg.

  17. Scope of the presentation • Recovery in the Baltic States • Outlook beyond the Baltic States • Vulnerabilities to tackle

  18. Current accounts are no longer a risk factor. CurrentAccountBalance (percent of GDP) Source: IMF, World Economic Outlook

  19. But total externaldebt, while coming down, remains high… Gross ExternalDebt (percent of exports) Source: IMF, World Economic Outlook

  20. …especially privatesectordebt. PrivateSectorExternalDebt (percent of GDP) Source: IMF, World Economic Outlook

  21. This is reflected in lower foreign bank exposure Foreign Bank Exposure (USD millions) Decline from the peak (Jun-08) -36% -30% -31% Source: BIS

  22. Fiscal positions are returning to “Maastricht” 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 „Maastricht zone” 2000 2012 2012 FiscalBalance (percent of GDP) 2012 2000 2000 Public Debt (percent of GDP) Slide by slide Source: WEO database.

  23. Credit growth has stalled and NPLs peaked. Non-performing Loans to TotalLoans(percent ) and Credit Growth (year-on-yearpercentchange) Source: Haver, National banks, Latvian Financial and Capital Market Commission

  24. Capital adequacy ratios have been strengthened Capital AdequacyRatio Source: IMF staff

  25. And the banking sectors are becoming more profitable Return on Assets Source: IMF staff

  26. But loan-to-deposit ratio remain very elevated. Loan-to-Deposit Ratio Source: Haver

  27. Thank you

  28. Backup slides

  29. Fiscal positions are returning to “Maastricht” 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 „Maastricht zone” 2000 FiscalBalance (percent of GDP) 2000 2000 Public Debt (percent of GDP) Source: WEO database.

  30. Fiscal positions are returning to “Maastricht” 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 „Maastricht zone” 2000 FiscalBalance (percent of GDP) 2000 2000 Public Debt (percent of GDP) Source: WEO database.

  31. Fiscal positions are returning to “Maastricht” 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 „Maastricht zone” 2000 FiscalBalance (percent of GDP) 2000 2000 Public Debt (percent of GDP) Source: WEO database.

  32. Fiscal positions are returning to “Maastricht” 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 „Maastricht zone” 2000 FiscalBalance (percent of GDP) 2000 2000 Public Debt (percent of GDP) Source: WEO database.

  33. Fiscal positions are returning to “Maastricht” 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 „Maastricht zone” 2000 FiscalBalance (percent of GDP) 2000 2000 Public Debt (percent of GDP) Source: WEO database.

  34. Fiscal positions are returning to “Maastricht” 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 „Maastricht zone” 2000 FiscalBalance (percent of GDP) 2000 2000 Public Debt (percent of GDP) Source: WEO database.

  35. Fiscal positions are returning to “Maastricht” 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 „Maastricht zone” 2000 FiscalBalance (percent of GDP) 2000 2000 Public Debt (percent of GDP) Source: WEO database.

  36. Fiscal positions are returning to “Maastricht” 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 „Maastricht zone” 2000 FiscalBalance (percent of GDP) 2000 2000 Public Debt (percent of GDP) Source: WEO database.

  37. Fiscal positions are returning to “Maastricht” 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 „Maastricht zone” 2000 2012 2012 FiscalBalance (percent of GDP) 2012 2000 2000 Public Debt (percent of GDP) Return Source: WEO database.

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