Baltic Rim Economies
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Baltic Rim Economies Estonia - Latvia - Lithuania - Poland - Baltic Russia Bimonthly Review ISSUE NO. 3, 17 JUNE 2009 ECONOMIC REVIEWS: ESTONIA Page 1 LATVIA Page 2 LITHUANIA Page 3 POLAND Page 4 ST. PETERSBURG Page 5 LENINGRAD REGION Page 6 KALININGRAD REGION Page 7 EXPERT ARTICLES: Jan Fischer: A strategic partnership with Russia remains our goal Page 8 Astrid Thors: The Baltic Sea is to remain a safe and attractive place Page 9 Henrik Lax: The Baltic Sea Region – A bridge between EU and Russia? – EU energy strategy and the Nord Stream gas pipeline Page 10 Janina Andersson: The Baltic Sea needs reform of European Union agricultural subsidies Page 11 Juhani Kaskeala: International sea surveillance co-operation in the Baltic Sea region Page 12 Stephen Blank: The future of Russia-US relations Page 14 Ilkka Laitinen: The Baltic Sea – model for well functioning cooperation and simultaneously a challenge from the Frontex’ point of view Page 16 Vladimir Mau: Crisis modernisation – lessons of the past and tasks for the future Page 17 Erkki Hämäläinen: Security as a competitiveness booster in the Baltic Sea Region Page 19 Timo P. Nieminen: Involvement of the City of Tampere in the Baltic Sea cooperation Page 20 Vasily Osipov: Vyborg Industrial Park Page 21 Arno Miettinen: Rauma - Unesco world heritage town Page 22 Solomon Ginzburg: Five years in the European Union Page 23 Maxim Shirokov: Ust-Luga Sea Merchant port – a strategic port of Russia Page 24 Alexei Moisseev: Russia: the loss of reserves and inflationary consequences of devaluation – the myth and the reality Page 25 EXPERT ARTICLES CONTINUED ON NEXT PAGE To receive a free copy, print or register at www.tse.fi/pei Baltic Rim Economies ISSUE NO. 3, 17 JUNE 2009 EXPERT ARTICLES CONTINUED: Natalia Orlova: The second wave of the banking crisis – to be or not to be? Page 26 Timo Vihavainen: Russia on the Baltic Page 27 Andrei P. Tsygankov: The post-western world – implications for Russia and the West Page 28 Hans Brask: Green valley on top of Europe – new and strong initiative can boost energy co-operation in the Baltic Sea Region Page 29 Lars-Christer Lundin: The Baltic University – a network for sustainable development Page 31 Jouko Rautava: Times are also hard for Russia forecasters Page 32 Philip Hanson: Russia’s crisis budget Page 33 Anu Mai Kõll: The history of the Baltic States – a minefield Page 34 Aarno Kotilainen: Look back – and learn Page 35 Pami Aalto: Policy platforms for regionalizing EU-Russia energy relations Page 36 Aki Koponen: State enterprises are still a problem for common markets Page 37 To receive a free copy, print or register at www.tse.fi/pei Baltic Rim Economies, 17.6.2009 Bimonthly Review 3ƒ2009 Estonia same level. The production of building materials has Fall of the economy continues declined sharply, by half in April y-o-y. The future also looks According to the first estimates by Statistics Estonia, the first bleak since only approximately 1,000 building permits were quarter GDP decreased by 15.1% thus continuing the steep issued in the 3rd quarter, which is about half less than a decline of the Estonian economy. The major factor year ago. contributing to the continuing decline was a further slowdown The situation has been difficult on the Estonian real in external demand according to the Bank of Estonia. The estate market as well. According to Statistics Estonia, in the declining external demand reflects the worsening situation in 1st quarter the total number of purchase-sale contracts Estonia’s main export partners. In addition, the Central Bank continued to decrease, this time by almost 40% y-o-y and stated that both consumer confidence and business turnover by a fourth compared to the previous quarter. In addition, a have shrunk during the first quarter. A substantial amount of total of 5 400 purchase-sale transactions took place during production resources has been left unutilised. the 1st quarter. The number of purchase-sale transactions per quarter has never been as low since Statistics Estonia Real growth rate of GDP by quarters in started to monitor the market in 1997. 2007QIʋ2009QI (y-o-y, %) Consumer prices decrease for the first time The consumer price index decreased by 0.3% in May y-o-y Statistics Estonia reports. This is the first time that the consumer price index, compared to the same month of the previous year, has decreased. The still continuing price 9,0 6,7 decrease of transport (-10.0%) was most significant. 5,5 4,4 However, prices rose in some commodity groups. The 0,2 -1,1 -3,5 -9,4 -15,1 highest price rise was recorded in clothing and footwear which increased slightly to 1.8%. Change of the consumer price index in selected commodity groups in May 2009 (%) 2007 I 2008 I 2009 I Commodity group y-o-y Previous 2007 II 2007 III 2007 IV 2008 II 2008 III 2008 IV month TOTAL -0.3 0.0 Source: Statistics Estonia Food and non-alcoholic beverages -4.8 -0.3 Industrial production data by Statistics Estonia gives Clothing and footwear 1.8 0.1 additional information on the downward trend. Industrial Housing 0.7 -1.3 production continued to decrease, this time by 34% in April y- Transport -10.0 1.6 o-y. Manufacturing fell by 36% which took production back to Hotels, cafés and restaurants 1.6 0.2 the level of 2003. Production decreased in all branches of Source: Statistics Estonia manufacturing. The manufacture of such goods as chemical and metal products, metals and paper products decreased by The index stayed at the same level (0.0%) in May more than 50%. compared to the previous month. One major contributing The economic downturn has lead to a worsening situation factor was the price decrease of housing (-1.3%) which has on the labour market. Average monthly gross wages and decreased steadily for some while now. One main reason salaries have decreased for the first time since 1993. The for this is the continuous decrease in the price of heating first quarter decrease was 1.5% y-o-y. However, lowering energy. Also food prices, dairy products in particular, salaries have been unable to salvage employment as continued their slight decrease (-0.3%). unemployment has hit their worst figures in eight years. Unemployment rose to 11.4% in the first quarter y-o-y. Some business highlights Estonian energy giant Eesti Energia has announced a EUR 190 million Construction and real-estate in trouble investment plan on a new oil-shale plant. The plant would be situated in eastern The total production of Estonian construction enterprises Estonia and it would be based on significantly more environmentally friendly decreased by a third in the first quarter y-o-y according to technology than previous facilities. Statistics Estonia. Thus the downturn of the construction The Estonian Bigbank AS, which runs banking services in all Baltic countries, is sector continues steeply. The decline was mainly caused by planning to shut down a third of its offices and lay off its personnel due to the decreased volumes in dwelling construction on the domestic hard competition at the credit market. At the beginning of 2009 the company market. The volume of civil engineering has stayed at the had 22 offices in Estonia and a total of 45 branches in the Baltic States. Estonia - main economic indicators 2001 2002 2003 2004 2005 2006 2007 2008 2009 as of GDP (y-o-y %-growth, constant prices) 6.5 8.0 7.2 8.3 10.2 11.2 7.1 -9.7 -15.1 Q1/2009 Industrial production (y-o-y %-growth) 8.9 8.2 11.0 10.5 11.0 7.3 6.1 -6.5 -34.0 4/2009 Inflation (CPI, end of period, y-o-y %-change) 4.2 3.6 1.3 3.0 4.1 4.4 9.6 10.4 -0.3 5/2009 General government budget balance (% of GDP) 0.3 1.5 2.0 2.3 2.3 3.8 2.8 -3.0 n/a 1-12/2008 Gross wage (period average, EUR) 352 393 430 466 555 596 784 838 776 Q1/2009 Unemployment (% end of period) 11.9 11.3 9.3 8.5 7.9 5.9 4.7 5.5 11.4 Q1/2009 Exports (EUR million, current prices) 3698 3642 4003 4770 6190 7647 8028 8454 1992 1-4/2009 Imports (EUR million, current prices) 4798 5079 5715 6704 8213 10576 11278 10872 2370 1-4/2009 FDI inflow (EUR million, current prices) 603 307 822 775 2255 1341 1817 1366 n/a 1-12/2008 Current account (% of GDP) -5.6 -10.6 -11.6 -12.5 -10.5 -14.8 -17.4 -9.2 n/a 1-12/2008 Sources: Statistics Estonia, Bank of Estonia, Eurostat, author's calculations 1 Pan-European Institute To receive a free copy please register at www.tse.fi/pei Baltic Rim Economies, 17.6.2009 Bimonthly Review 3ƒ2009 Latvia Exports kept on decreasing in almost all of the main Economy contracts rapidly – GDP down by 18.0% commodity groups y-o-y. For instance, exports in The Latvian economy has continued to contract sharply. The st machinery and mechanical appliances decreased by Latvian GDP decreased by as much as by -18.0% in the 1 28.7%. Likewise, exports in wood and wood products still quarter y-o-y according to the Central Statistical Bureau of decreased, now by 40.4% and exports in base metals and Latvia.