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Tuesday, December 25, 2007

Merry Xmas and A Happy New Year

Well, a Merry Xmas and a Happy New Year to all my readers. Thank you for taking the time and trouble to pass-by. This blog will now - failing major and surprising new developments in the global economy - be offline till the end of the first week in January, or till after the festival of Los Reyes Magos in Spain (for those of you who know what this is all about). Come to think of it, maybe this is just what our ever hopeful central bankers are in need of even as I write - some surprise presents from the three wise men - but I fear that this year if these worthy gentlemen do somehow show at the next G7 meet, the star in the east which draws them will not be the one described in the traditional texts, but in all likelihood the rising star of India.

Credit crunch, did someone use the expression credit crunch?

Wednesday, December 12, 2007

Latvia Population 2007

Well here's a nice chart I culled from Latvijas statistika.

Basically the central point they make is that even despite a small increase in births this year, the negative population momentum is now so strong that it is very hard to arrest the drift. Blow I reproduce a part of their argument, my own brief look at Latvian demography can be found here.

The data of Central Statistical Bureau show that in 2007 the positive trend in the creation of new families is continuing and the number of newborns is increasing. However, due to the number of deaths exceeding births, as well as due to emigration from Latvia, mainly to other European Union countries, the number of population continues to decrease. At the end of the year it will be approximately 2 million 270 thousand, or less by 11.6 thousand persons than at the beginning of the year.

Statistical data characterizing demographic situation in 10 months of this year and their estimation for November and December allows to forecast that this year the number of born children will be more by 1150 children than in previous year 2006, or more by 2 thousand compared to 2005. The number of newborns might be 23.4 thousand. With the increase of the number of births, the relative birth indicator (births per 1000 population) will also increase, and it could be 10.3 (in 2006- 9.7).

The number of deaths in 2007 will be approximately 33 thousand or the same as a year before. However, taking into account that the number of population decreases, the relative death indicator (deaths per 1000 population) will slightly increase, and will make up approximately 14.54 (in 2006- 14.47).

As the total of deaths exceeds the number of births, in the result the number of population in 2007 will decrease by 9.7 thousand persons compared to 10.8 thousand persons in 2006.

Tuesday, December 11, 2007

Latvia Trade Balance September 2007

Compared to August 2007, the value of Latvian exports increased in September 2007 by 0.3% or 1 mln lats, but when compared with September 2006 they increased by 16.2 % or 46.9 mln lats, reaching a total of 336.7 mln lats, according to data from Latvijas Statistika.

The value of imports in September 2007 was 1.3% or 8.4 mln lats lower than in August 2007, and 8.5% or 49.7 mln lats higher than September 2006, reaching a total of 633.3 mln lats.

The total foreign trade turnover in September 2007 was 11.1% or 96.7 mln lats higher than in the corresponding period of the previous year and its value was 970.0 mln lats.

As can be seen in the chart, many of the lines in Latvia are down at the moment, including the trade deficit one, which is basically still as bad as it ever was.

The small positive change we can observe in the second chart is that the rate of increase in imports has slowed down dramatically since July basically (on the back of the slowdown in domestic demand growth presumably), while the rate of growth in exports is now no longer slowing, and we can see a small increase in the pace.

Latvia Inflation November 2007

Latvia's inflation continued climbing in November, reaching an annual rate of 13.7 percent, the country's statistics office announced today. It is the sixth month in a row that the consumer price index has risen in Latvia, which now has the highest inflation in the 27-member European Union.

Monthly inflation in November was 1.4 percent, led by food prices, which increased 3.4 percent, Latvian Statistics said. Bread prices alone soared 16.3 percent over the month. The result is another blow for the outgoing government, which in March passed a series of anti-inflation measures to curb bank lending and speculation on the real estate market. The four-party ruling coalition resigned on Wednesday after having lost its credibility over the sacking of a popular anti-corruption chief in October.

The coalition, however, still maintains a majority in the 100-seat parliament and will likely form the next government. Outgoing Prime Minister Aigars Kalvitis said the next head of government would have to tackle economic issues immediately as Latvia's economy continues to face macroeconomic imbalances. I agree. Immediately!

Sunday, December 9, 2007

Latvia Retail Sales October 2007

Compared to September, in October of this year retail trade turnover in Latvia fell by 1.1% on a seasonally adjusted basis, according to data from the Latvian Central Statistical Bureau. Compared to October 2006, the turnover grew by 9.1% (data adjusted for the number of working days). So retail sales are slowing in Latvia, and fast. I have prepared a chart comparing the situation in Latvia with that in Estonia.

The slowdown in sales is much more rapid in Latvia, and on a rule of thumb reckoning - take a look at the chart and estimate for yourself - I guess in two or three months we will be looking at zero year on year growth and then contraction. So Latvia is now about to transit from the "Baltic Syndrome" to the Hungarian one.

And to help us see how we might get there, here is the next chart, the industrial producer prices one. As we can see, the rate of increase in producer prices has now peaked, and we are on the way down, but the decline is not rapid as it is in the case of retail sales.

Inflation has really wormed its way into the system, and it may well prove recalcitrant to being flushed out, again as we have seen in the Hungarian case. But there is one big difference with Hungary, and this can be seen in the next chart.

Waht we can see above is that Hungary is achieving, via an efficiency drive and substantial real wage deflation, a real reduction in export prices. Latvia has now peaked on this front, and the prices are coming down (while Estonia is still to correct really). Looking at the chart, I would say Latvia is about where Hungary was around 10 months ago. So this is likely to be a lengthy process, and remember that Hungary is still on a downard trail as far as GDP growth goes, with under 1% GDP growth this year, and my guess is a little less next year. And in Hungary they still have to decide what to do about the currency issue, and all those Swiss Franc mortgages people have. Since this is all going to become such an important problem, and since there is always safety in numbers, I think the governments of Latvia, Estonia and Lithuania should get together with the Hungarian one (and possibly Bulgaria and Romania) and have a high level meeting in Brussels to start to sort out the details of the inevitable bail out. I mean, how much of the "hit" are the Scandinavian, Austrian and Italian banks who are into this up to their eyes (and certainly over their heads) going to stand, and who else is going to come up to the plate and put money in when the inevitable correction on the book value of these debts comes. Call this the European Mega Conduit.

Latvia Industrial Output October 2007

Compared to September 2007, industrial output in October 2007 decreased by 1.7%, according to seasonally adjusted data from the Latvian the Central Statistical Bureau. Manufacturing fell by 2.1%, while electricity, gas and water supply fell by 0.9%. On the other hand in mining and quarrying output increased by 3.7%.

When compared with October 2006, in October 2007 total seasonally adjusted industrial production output fell by 1.6%. Output in manufacturing decreased by 6.7%, while in electricity, gas and water supply there was an increase of 15.4%, and output in mining and quarrying increased by 17.3%. I think the following chart makes the trend reasonably clear.

And then is we trun to the data for manufacturing only, well, here's your slowdown, or at least one part of it, clear for the eye to see I would say:

Latvia Q3 2007 GDP

First off I would like to say that hello to all my blogging friends in Latvia. To Lavian Abroad, to Sam at FotoLat, to Aleks at All About Latvia and to Peteris at Marginalia. Despite all rumours to the contrary, I have not given up on the Baltics. Far from it. But I have been busy trying to improve my understanding of the problems, in part by looking at Romania, and even more to the point at Russia. If Mother Russia catches the Baltic illness, then we will all be in trouble, oh deary me! I have also been peering and peering into what is happening in Hungary, to try and see if anything can be learnt from finding out why Hungary is so different from the rest of the EU10, as well as what the correction in Hungary can tell us about what might happen next in the Baltics. The only definitive conclusion I can offer you is that addressing the domestic demand issue without takling the currency value question raises the danger of making any correction a very protracted and painful affair, and even then the problem may not be solved. So there are clear, and to the point, arguments for ripping off the band-aid in one foul stroke.

I have also been posting extensively about Estonia over the weekend on my Baltic Economy Watch blog, and many of the points I make there are pretty valid in the Latvian context, even if the pace and level of things differs from one country to another. Today I am looking at GDP, insutrial output and retails sales (to follow), but tomorrow promises to be an interesting day, since we shall have inflation data and foreign trade data.

Well, turning now to GDP, and as Latvian Abroad notes in a recent post, the Latvian Economy is slowing lost of signs of slowing. You can see it in the latest GDP numbers, for example.

As we can see, the high point was reached in Q1 2006, and since that time ever so surely and ever so steadily the Latvian enconomy has been slowing down. Compared to the corresponding period of previous year, in the 3rd quarter of this year Latvian GDP increased by 10.9%, according to data released by Latvijas Statistika last Friday. Interestingly one of the parts of the economy which has slowed most is manufacturing indutry, which actually decreased by 0.3% y-o-y in Q3, and mining and quarrying only managed a measly 2.4%. Construction managed a 13.2% y-o-y growth, but this is undeoubtedly due to large base effects earlier in the year, and the execution of previously signed contracts - as we are noting in the US, you need to wait nearly a year to see the full effects of a slowdown in requests for new buildings to execute.

Unfortunately Latvijas Statistika do not have the Q3 breakdon in their database yet, and they only give annualised data in the press release, when what is most interesting at this point are the quarter on quater changes. Still they do produce this reasonably informative chart about movements in some of the key expenditure components over the last year, and some things are reasonably clear (please click over image for better viewing).

As is obvious, final household demand peaked in the 4th quarter of 2006, and is now falling steadily. It is not clear when (ot whether) this component will ever recover to the extent of being able to drive growth, since we get into age related elements (which I know not many people agree with me on at this stage, but still) as Latvia's median age is climbing steadily, and calibrating all of this for Eastern Europe's comparatively low male life expectancy (ie calibrating how domestic constumption loses its relative strength as median age rises, in the way we have seen in Germany, Japan and Italy) is something noone has done at this point to my knowledge. In fact most people you talk to don't imagine that this is important, but then most of them didn't imagine that Hungary would fall into the hole it is currently falling into.

Now as we can see, these two countries (Latvia and Hungary) are pretty similar in the evolution of the relative population median ages. And if we come to male life expectancy, here is a comparison of Hungary, Latvia and Germany.

As we can see, male life expectancy is considerably lower in both Hungary and Latvia, than it is in Germany, and this must have consequences for economic behaviour and performance. Increasing the working life to 67 and beyond as they have in Germany is just not the same proposition at all in a lower life expectancy society like the other two, nor is the issue of getting employment participation rates among the over 60s comparable given the evident health problems of one part of the population.

So while we would not normally expect domestic consumption to run out of steam until the median age reaches 41/42 (this is the sort of lesson we can garner from Germany, Italy and Japan) there may be good reasons for imagining that this median age needs rounding down somewhat in the Latvian and Hungarian contexts. I will certainly stick my head out and say that this property boom, like the 1992 one in Japan, and the 1995 one in Germany is very likely to be the last of its kind we will see in Latvia, high median age societies just don't work like this. They do not ride on the backs of credit driven booms, and I would have thought that the reasons why would be obvious.