2017 OECD Economic Survey of Latvia · 2017 OECD ECONOMIC SURVEY OF LATVIA ... (2016), Community...
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2017 OECD ECONOMIC SURVEY OF LATVIA Boosting productivity and inclusiveness September 15 th 2017, Riga Latvia http://www.oecd.org/eco/surveys/economic-survey-latvia.htm
Transcript of 2017 OECD Economic Survey of Latvia · 2017 OECD ECONOMIC SURVEY OF LATVIA ... (2016), Community...
2017 OECD ECONOMIC SURVEY OF LATVIA Boosting productivity and inclusiveness September 15th 2017, Riga Latvia
http://www.oecd.org/eco/surveys/economic-survey-latvia.htm
Main messages
1
• The Latvian economy is growing strongly, underpinned by progress with economic reforms.
• Deeper integration into international trade is necessary to
catch up with high-income countries.
• Poverty and unemployment are still high. Access to jobs, housing and health services need to improve.
Growth has been strong
2
75
80
85
90
95
100
105
110
75
80
85
90
95
100
105
110
2007
Q1
2007
Q3
2008
Q1
2008
Q3
2009
Q1
2009
Q3
2010
Q1
2010
Q3
2011
Q1
2011
Q3
2012
Q1
2012
Q3
2013
Q1
2013
Q3
2014
Q1
2014
Q3
2015
Q1
2015
Q3
2016
Q1
2016
Q3
2017
Q1
Latvia Estonia Euro area
Real GDP, Index 2007 =100
Source: OECD (2017), OECD Economic Outlook: Statistics and Projections (database).
3
Exports have gained market share
Source: OECD (2017), OECD Economic Outlook: Statistics and Projections (database).
Export performance indicator, moving average 2010=100
4
Unemployment has fallen
Unemployment rate as % of labour force
Source: OECD (2017), OECD Economic Outlook: Statistics and Projections (database).
0
4
8
12
16
20
24
0
4
8
12
16
20
24
2010
Q4
2011
Q1
2011
Q2
2011
Q3
2011
Q4
2012
Q1
2012
Q2
2012
Q3
2012
Q4
2013
Q1
2013
Q2
2013
Q3
2013
Q4
2014
Q1
2014
Q2
2014
Q3
2014
Q4
2015
Q1
2015
Q2
2015
Q3
2015
Q4
2016
Q1
2016
Q2
2016
Q3
2016
Q4
2017
Q1
2017
Q2
Latvia Euro area
5
Wages have grown more than prices
Source: OECD (2017), OECD Economic Outlook: Statistics and Projections (database).
Growth of labour compensation per employee and consumer price inflation
-4
-2
0
2
4
6
8
10
12
-4
-2
0
2
4
6
8
10
12
2010
Q4
2011
Q1
2011
Q2
2011
Q3
2011
Q4
2012
Q1
2012
Q2
2012
Q3
2012
Q4
2013
Q1
2013
Q2
2013
Q3
2013
Q4
2014
Q1
2014
Q2
2014
Q3
2014
Q4
2015
Q1
2015
Q2
2015
Q3
2015
Q4
2016
Q1
2016
Q2
2016
Q3
2016
Q4
2017
Q1
2017
Q2
% %
Worker pay Inflation
6
Latvia is a top reformer
The 2017 Going for Growth reform responsiveness indicator
Source: OECD (2017) Going for Growth 2017 edition.
0
20
40
60
80
IDN
SVN
AUS
CAN ISL
TUR
LUX
PRT
POL
CHE
NZL
ZAF
KOR
FIN
GBR
SVK
HUN
SWE
USA
COL
OECD ES
P
NOR
IND
JPN
DEU
DNK
NLD
CZE
EST
IRL
ITA
GRC
MEX
CHN
ISR
CHL
AUT
BEL
BRA
FRA
LVA
%
7
Debt has fallen
Debt as % of GDP
Source: OECD (2017), OECD Economic Outlook: Statistics and Projections (database) and OECD National Accounts Statistics (database).
0
40
80
120
160
200
0
40
80
120
160
200
2010 2011 2012 2013 2014 2015
% %
Households Non-financial corporations
8
Important challenges remain
9
The gap in productivity remains large
-80
-75
-70
-65
-60
-55
-50
-45
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
%
Gap in GDP per capita of Latvia vis-à-vis the upper half of OECD countries
Source: OECD (2017), OECD National Accounts Statistics (database) and OECD Productivity Statistics (database).
10
Poverty is high
Source: OECD (2017), OECD Social and Welfare Statistics (database).
Share of population with disposable income below the poverty line, 2015 or latest
0
3
6
9
12
15
18
0
3
6
9
12
15
18
CZE
FIN
NOR
LUX
SVK
AUT
BEL
IRL
SVN
GBR
OECD PR
T
ITA
GRC
ESP
EST
LTU
LVA
% %
11
Income inequality remains high
Source: OECD (2017), OECD Social and Welfare Statistics (database).
Gini coefficient, scale from 0 (perfect equality) to 1 (perfect inequality), 2015 or latest available
0.0
0.1
0.2
0.3
0.4
0.5
0.0
0.1
0.2
0.3
0.4
0.5
ISL
SVK
SVN
DNK
CZE
NOR
FIN
BEL
AUT
SWE
LUX
HUN
DEU
KOR
FRA
CHE
IRL
POL
NLD
CAN
OECD IT
A
JPN
AUS
PRT
GRC
ESP
EST
NZL
LVA
ISR
GBR
USA
TUR
CHL
MEX
12
Higher income, better housing and better health would raise wellbeing
Source: OECD (2016), OECD Better Life Index- Edition 2016.
OECD Better Life Index, from 0 (worse) to 1 (best), 2016
0.0
0.2
0.4
0.6
0.8
1.0Income and wealth
Jobs and earnings
Housing
Work and life balance
Health status
Education and skillsSocial connections
Environmental quality
Personal security
Subjective well-being
Latvia OECD
Civic engagement and governance
13
Credit growth is still weak
-10
-5
0
5
10
-10
-5
0
5
10
2009
M3
2009
M6
2009
M9
2009
M12
2010
M3
2010
M6
2010
M9
2010
M12
2011
M3
2011
M6
2011
M9
2011
M12
2012
M3
2012
M6
2012
M9
2012
M12
2013
M3
2013
M6
2013
M9
2013
M12
2014
M3
2014
M6
2014
M9
2014
M12
2015
M3
2015
M6
2015
M9
2015
M12
2016
M3
2016
M6
2016
M9
2016
M12
2017
M3
%%
Households Non-financial corporations
Source: Bank of Latvia.
Year-on-year percentage change of credit stock
14
Seize opportunities in global markets to catch up with high-income countries
15
Productivity growth has slowed
Average annual growth of labour productivity
Source: OECD (2017), OECD Productivity Statistics (database).
0
2
4
6
8
10
0
2
4
6
8
10
1995-2005 2005-2016 1995-2005 2005-2016 1995-2005 2005-2016Total Manufacturing Business sector services
% %
Trade could boost productivity and income
Domestic value added per worker embodied in foreign final demand, 2011
Source: OECD/WTO (2016), Statistics on Trade in Value Added (database) and OECD (2016), "Trade in Employment: Core Indicators" in OECD Structural Analysis (STAN) Databases.
16
17
Latvia must move up the value chain to knowledge-intensive activities
Source: OECD (2013), Interconnected Economies: Benefiting from Global Value Chains, OECD Publishing, Paris.
18
Many workers feel under-skilled at the time of hiring
Source: CEDEFOP (2016), “Skills Panorama” (http://skillspanorama.cedefop.europa.eu).
Share of employees reporting lower skill level than required for their jobs at the time of hiring, 2014
0
10
20
30
40
50
0
10
20
30
40
50
LUX
ES
P
SV
N
DE
U
NLD BE
L
GR
C
ITA
AU
T
HU
N
SW
E
PO
L
GB
R
FRA
PR
T
DN
K
IRL
FIN
CZE
SV
K
LVA
LTU
ES
T
19
Skill shortages are holding back participation in global value chains
Source: CEDEFOP (2016), “Skills Panorama” (http://skillspanorama.cedefop.europa.eu).
0
3
6
9
12
15
0
3
6
9
12
15
LUX
PRT
DEU
AUT
ITA
ESP
GBR
SVN
NLD
FRA
DNK
BEL
POL
HUN
GRC
SWE
IRL
SVK
CZE
FIN
LVA
LTU
EST
% %
Share of employees reporting lower skill level than required for their current jobs, 2014
20
Few firms cooperate with research institutions
0
5
10
15
20
25
0
5
10
15
20
25
ITA
LVA
LTU
PRT
CH
E
GR
C
LUX
HU
N
CZE
SVK
POL
FRA
DN
K
NLD
SWE
DEU ES
T
NO
R
ISL
BEL
SVN
FIN
AUT
%%
Source: Eurostat (2016), Community Innovation Survey (CIS).
The share of firms engaging in research cooperation % of all product and/or process-innovating firms, 2012-14
21
Low debt recovery hampers access to credit
0
20
40
60
80
100
0
20
40
60
80
100
TUR
CHL
GRC
EST
HUN
LUX
CHE
LVA
SVK
POL
ISR
ITA
CZE
MEX
OECD PR
TSW
EES
PFR
AUS
AAU
SAU
TNZ
LDE
UKO
R ISL
CAN IRL
DNK
GBR
SVN
NLD
BEL
FIN
JPN
NOR
%%
Source: World Bank (2017), Doing Business 2016: Measuring Regulatory Quality and Efficiency (Resolving insolvency database).
Average recovery rate from insolvency , 2016
22
Infrastructure lags behind peer countries
Global Competitiveness Index, scale from 1 to 7 (best) 2016-17
0
1
2
3
4
5
6
7
0
1
2
3
4
5
6
7
Latvia Estonia Lithuania Finland
Source: World Economic Forum, "The Global Competitiveness Report 2016-2017".
23
Provide more generous grants for students attending vocational schools who are from low-income families.
Expand grants for university students and target them to students from low-income families.
Increase government funding of innovation promotion programmes with strong evaluation results.
Strengthen the specialisation of judges to improve the insolvency regime.
Apply the same cost-benefit tests to large national infrastructure projects as are applied to EU-funded projects.
Recommendations to seize opportunities in global markets to catch up with high-income countries
24
Improving access to jobs, housing, and health services
25
Unemployment is high in some regions
Source: Central Statistical Bureau of Latvia.
0
4
8
12
16
20
0
4
8
12
16
20
Latvia Pierīga Riga Vidzeme Kurzeme Zemgale Latgale
% %
Unemployment as % of the labour force, 2016
26
High unemployment keeps poverty high
Source: Central Statistical Bureau of Latvia.
0
9
18
27
36
45
0
9
18
27
36
45
Latvia Riga Pierīga Kurzeme Zemgale Vidzeme Latgale
% % Share of population with disposable income below 60% of median household income
27
Access to affordable rental housing is low
0
10
20
30
40
50
60
70
80
0
10
20
30
40
50
60
70
80
LTU
ME
X³
PO
LE
ST
SV
KH
UN
CH
L³LV
AS
VN
PR
TG
RC
CZ
EIT
AE
SP
NO
RIR
LA
US
³IS
LK
OR
GB
RF
INLU
XF
RA
CA
N³
US
A³
BE
LA
UT
CH
ES
WE
³D
NK
³N
LD³
DE
U
%%
Rent (private)¹ Rent (subsidized)²
Share of rental housing, low-income households, 2014 or latest year
Source: OECD (2016), OECD Affordable Housing Database.
28
Spending on active labour market policies is low
Source: OECD (2017), OECD Employment and Labour Market Statistics (database).
Public expenditure, % of GDP, 2015 or most recent
0.0
0.4
0.8
1.2
1.6
2.0
2.4
0.0
0.4
0.8
1.2
1.6
2.0
2.4
MEX
USA
JPN
LVA
ISR
CHL
EST
SVK
AUS
GBR
CAN
SVN
LTU
NZL
KOR
CZE
POL
ITA
OECD NO
R
PRT
IRL
CHE
ESP
DEU
LUX
BEL
AUT
NLD
HUN
FIN
FRA
SWE
DNK
29
Out-of-pocket payments in healthcare are high
Source: OECD (2017), OECD Health Statistics (database)
0
10
20
30
40
50
0
10
20
30
40
50
FRA
LUX
USA
NLD
SVN
DEU
JPN
CZE
DNK
NOR
CAN
GBR IRL
SWE
TUR ISL
BEL
AUT
SVK
FIN
OECD ES
T
ITA
POL
ESP
ISR
PRT
CHE
HUN
CHL
GRC
KOR
MEX
LVA
Household out-of-pocket expenditure, % of total current expenditure on health care, 2015
30
Workers pay high fees for private pensions
0.0
0.4
0.8
1.2
1.6
2.0
0.0
0.4
0.8
1.2
1.6
2.0
FIN
DN
K
NLD
LUX
DE
U
GB
R¹
PR
T
ISL
NO
R
BE
L
AU
T
CA
N
ISR
NZL
¹
HU
N
CH
E
CH
L¹
PO
L
AU
S
GR
C¹
TUR
¹
SV
K
SV
N
ES
P
CZE
ES
T
LVA
% %
Operating costs of the private pension system % of assets under management, 2015
Source: OECD (2017), OECD Pensions Statistics (database).
31
Expand the mobility programme, which provides temporary support for relocation and transport to unemployed moving to a job.
Provide more funding for low-cost rented housing in areas of expanding employment.
Improve legal certainty in rental regulation and encourage out-of-court procedures.
Simplify the administrative process for obtaining a building permit.
Promote the provision of adult education by vocational education schools.
Lower operating costs in the compulsory private pension system, for example by introducing a low-cost fund as the default choice.
Reduce health care out-of-pocket payments especially for the low-income population.
Recommendations to improve access to jobs, housing, and health services
32
Using budget and tax policy to support inclusive growth
Government debt is low
33
Source: OECD Economic Outlook 101 database. National Accounts definition of government debt (not Maastricht).
0
40
80
120
160
200
240
0
40
80
120
160
200
240
EST
LUX
NZL
NOR
CHE
KOR
LVA
AUS
CZE
DNK
SWE
LTU
SVK
ISR ISL
POL
NLD
FIN
DEU IRL
HUN
SVN
CAN
AUT
USA
OECD ES
P
GBR
FRA
BEL
PRT
ITA
GRC
JPN
General government debt % of GDP, 2016
34
Informality remains high
Source: Putniņš, T. and A. Sauka (2017), "Shadow Economy Index for the Baltic Countries", Stockholm School of Economics in Riga.
Estimated size of the shadow economy and underreported corporate profits and wages, 2016
35
Taxes on low wages are high
Source: OECD (2017), OECD Tax Statistics (database) and OECD estimate of tax reform effect.
Taxation of labour income, 2016 % of total labour compensation, single person at 67% of average earnings without children
0
10
20
30
40
50
0
10
20
30
40
50
CH
LN
ZL ISR
MEX
KOR
CH
EIR
LAU
SG
BRC
AN
US
AIS
LN
LD JPN
LUX
OEC
DN
OR
DN
KPO
LTU
RES
PG
RC
PRT
EST
FIN
SVN
SVK
CZE IT
ASW
ELV
AAU
TFR
AD
EU
BEL
HU
N
%%
after tax reform
Tax reform approved in 2017 will reduce taxes on profits and wages from 2018.
36
Raise spending to address pressing structural and social policy priorities.
Make better use of information and communication technology for tax law enforcement.
Strengthen the budgetary independence of the Corruption Prevention and Combating Bureau (KNAB).
Remove political influence in the appointment of judges. Reduce taxes on low wages further. Raise more revenues from the taxation of real estate and
energy. Broaden the base of business income taxation by
removing tax exemptions.
Recommendations for budget and tax policy to support inclusive growth
37
For more information
http://www.oecd.org/eco/surveys/economic-survey-latvia.htm
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