2022 OECD ECONOMIC SURVEY OF LATVIA Towards a strong, resilient and sustainable recovery
9 March 2022, Riga @OECD
@OECDeconomy
www.oecd.org/economy/latvia-economic-snapshot/
Vaccinations have been lagging Total vaccine doses administered Per 100 inhabitants, 7-day average 210
Latvia
180
Estonia
Lithuania
210
OECD
180
150
150
120
120
90
90
60
60
30
30
0
Jan 21
Mar 21
May 21
Jul 21
Sep 21
Nov 21
Jan 22
0
Source: OECD calculations based on Our World in Data. 2
The economy has been recovering from the pandemic until recently Real GDP, index 2019Q1 = 100 110
110 Latvia
OECD
EU27
105
105
100
100
95
95
90
90
85
2019Q1
2019Q3
2020Q1
2020Q3
2021Q1
2021Q3
85
Source: OECD National Accounts. 3
Inflation has risen sharply Inflation Consumer price index, year-on-year % change 10 8
Latvia
Euro area
OECD
10 8
6
6
4
4
2
2
0
0
-2
-2
Jan 21 Feb 21 Mar 21 Apr 21 May 21 Jun 21 Jul 21 Aug 21Sep 21 Oct 21 Nov 21 Dec 21 Jan 22 Note Harmonised consumer price index for Latvia and Euro area. Source: OECD Consumer prices database.
4
Living standards have been converging rapidly Gap in GDP per capita against OECD average, % -25
-25
-30
-30
-35
-35
-40
-40
-45
-45
-50
-50
2007
2009
2011
2013
2015
2017
2019
2021
Note: Percentage gap with the OECD average in terms of GDP per capita (in constant 2015 PPPs). For 2021, data are estimated. Source: OECD Quarterly National Accounts database. For 2021, data are estimated. 5
Ageing pressures will have a significant fiscal impact 160 140 120
General government debt, Maastricht definition % of GDP
160
No-policy-change scenario
140
Offsetting ageing-related costs on pensions and health and long-term care
120
100
100
80
80
60
60
40
40
20
20
0 2000
2005
2010
2015
2020
2025
2030
2035
2040
2045
2050
2055
0 2060
Note: The no-policy-change scenario assumes that increased spending on health, long-term care and pensions will add 1.8 percentage points of GDP to annual government spending at the peak in 2055 and 1.6 percentage point of GDP by 2060, in line with European Commission (2021). An increase of 0.8 per cent of GDP by 2060 is due to a rise in spending on health and long-term care, and another 0.8 per cent is due to a rise in public pension spending that is greater than the increase in the contributions. The offsetting ageing-related costs on pensions and health and long-term care scenario assumes a primary balance of -0.3% of GDP from 2024, in line with the medium-term objective of the government. Source: OECD Economic Outlook 110 database; Guillemette et al (2021); European Commission (2021).
6
Reducing social disparities
7
Social disparities are clear Poverty rate %, 2019 20
15
15
10
10
5
5
0
0
CZE ISL FIN IRL SVN DNK FRA NLD NOR BEL SVK HUN AUT DEU POL CHE EU27 SWE PRT LUX GBR GRC ESP LTU ITA EST LVA
20
Note: Set at 50% of median disposable income, after taxes and transfers. Source: Eurostat database. 8
The impact of taxes and transfers on income disparities is moderate Household income distribution Gini coefficient1, 2019 or latest available year 0.6
0.6
0.5
0.5
0.4
0.4
0.3
0.3
0.2
0.2
Pre taxes and transfers
SVK CZE SVN ISL BEL NOR DNK FIN AUT SWE POL NLD DEU HUN IRL CHE CAN FRA EST GRC PRT LUX AUS ITA ESP JPN LVA KOR ISR LTU GBR USA TUR MEX CHL CRI
0.1
Post taxes and transfers
0.1
1. Scale from 0 "perfect equality" to 1 "perfect inequality". Source: OECD Income Distribution database (IDD). 9
More housing investment is needed Housing investment % of GDP, average 2000-20 or latest available year 8
6
6
4
4
2
2
0
0
LVA POL SVN SVK LUX HUN GBR EST SWE ISL USA JPN CZE PRT AUT NOR KOR CHE OECD DNK ITA NLD GRC AUS IRL BEL DEU ISR NZL FRA MEX FIN CAN ESP
8
Source: OECD National Accounts database. 10
Greenhouse gas emissions have been flat since 2000 GHGs emissions 1993 = 100 120
120
110
110
100
100
OECD
90 80
60
80
Latvia
70 1993
1998
90
70 2003
2008
2013
2018
60
Source: OECD Environment Statistics database. 11
Strengthening future growth
12
Access to bank lending is low Domestic credit to private sector % of GDP, 2020 240
200
200
160
160
120
120
80
80
40
40
0
0
IRL LVA LTU HUN MEX SVN POL CZE COL CRI EST ISR SVK TUR BEL GRC ITA DEU AUT ISL PRT NLD FIN LUX ESP FRA CHL SWE AUS GBR NZL DNK KOR NOR JPN USA
240
Source: World Bank, WDI database. 13
Population is shrinking Working-age population 15-64, annual % change 1990-2020 2020-2060
LVA LTU EST JPN HUN SVN GRC ITA DEU PRT CZE POL FIN DNK NLD FRA SVK BEL AUT SWE GBR ESP OECD KOR CHE NOR USA CAN ISL NZL AUS IRL CHL LUX TUR COL MEX CRI ISR
2.5 2 1.5 1 0.5 0 -0.5 -1 -1.5 -2
2.5 2 1.5 1 0.5 0 -0.5 -1 -1.5 -2
Source: United Nations (2019), World Population Prospects: The 2019 Revision, Online Edition. 14
Spending on active labour market policies is low Active labour market policy spending % of GDP, 2019 2.0
1.6
1.6
1.2
1.2
0.8
0.8
0.4
0.4
0.0
0.0
MEX CHL USA ISR JPN LVA SVN CAN LTU SVK ITA CZE PRT IRL POL KOR NOR EST NLD HUN CHE DEU OECD ESP AUT FRA LUX BEL FIN SWE AUS DNK
2.0
Source: OECD Labour Market Statistics database. 15
The gender wage gap is sizeable Gender wage gap, median wages Full-time employees, 2020 or latest available year 35
30
30
25
25
20
20
15
15
10
10
5
5
0
0
-5
-5
LUX COL CRI BEL NZL NOR DNK ITA GRC SWE SVN IRL CHL ESP MEX AUS TUR SVK POL PRT LTU FRA GBR CZE OECD NLD HUN ISL DEU AUT CHE CAN FIN EST USA LVA JPN ISR KOR
35
Note: The gender wage gap is the difference between male and female median wages divided by the male median wages. Source: OECD Employment and Labour Market Statistics database. 16
Health outcomes are weak Average healthy life years expected at birth 2019 or latest available year Years 75 70
Women
Men
Years 75 70 65
60
60
55
55
50
50
LVA EST SVK FIN AUT HRV LTU DNK PRT ROU CHE SVN NLD GBR HUN CZE BEL ISL POL LUX FRA EU27 GRC BGR DEU ITA IRL NOR ESP SWE
65
Note: Healthy life years are defined as the number of years spent free of long-term activity limitation (this is equivalent to disability-free life expectancy). Source: Eurostat database.
17
Out-of-pocket health-care spending is high Households' out-of-pocket expenditure % of total current expenditure on health care, 2020 or latest available year 50
40
40
30
30
20
20
10
10
0
0
FRA NLD LUX IRL SVN USA DEU NZL JPN SWE NOR GBR CZE DNK ISL COL CAN AUT TUR FIN AUS BEL SVK POL EST ISR ITA ESP CRI CHE PRT HUN KOR CHL LTU GRC LVA MEX
50
Source: OECD Health Statistics database. 18
Capitalising on export opportunities
19
Export performance can be improved Export performance 1995 = 100 260
260
Latvia
240
240
OECD Central and Eastern Europe
220
220
Estonia
200
200
Lithuania
180
180
160
160
140
140
120
120
100
100
80
80
1995
1998
2001
2004
2007
2010
2013
2016
2019
Note: Export performance is measured as actual growth in exports relative to the growth of the country's export market. Central and Eastern Europe is calculated as an unweighted average of Czech Republic, Hungary, Poland, Slovak Republic and Slovenia. Source: OECD Economic Outlook database.
20
Low- and medium-tech industries dominate manufacturing Gross value added in manufacturing by technological intensity Current prices, %, 2018 100
Low-technology
Medium-low-technology
Medium-high-technology
High-technology
100
80
80
60
60
40
40
20
20
0
0
DEU HUN CZE SVK SVN DNK AUT BEL FIN FRA GBR NLD ITA POL ESP EST GRC PRT LVA Note: Based on Eurostat aggregation of the manufacturing industry according to technological intensity, based on NACE Rev.2. Source: Eurostat.
21
Education outcomes could be better Top performers in science, mathematics and reading % of 15 year-old students, 2018 8
6
6
4
4
2
2
0
0
COL MEX CHL GRC TUR ITA LVA SVK LTU HUN ISL PRT ISR DNK LUX IRL AUT FRA OECD SVN CZE NOR CHE BEL AUS USA GBR SWE NZL DEU FIN POL NLD CAN JPN KOR EST
8
Note: Top performers in science, mathematics and reading are students who achieved the highest level of proficiency (i.e. Levels 5 and 6) on the OECD’s PISA assessment. Source: OECD (2020), PISA 2018 Results (Volume I). 22
Increasing spending on Research and Development would spur innovation Expenditure on Research and Development (R&D) % of GDP, 2019 or latest available year Higher education and private non-profit Government Business enterprise
MEX COL CHL LVA SVK LTU TUR LUX IRL ESP GRC POL PRT NZL ITA HUN CAN EST GBR AUS CZE SVN NOR NLD FRA ISL OECD FIN DNK USA AUT BEL CHE DEU JPN SWE KOR ISR
5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0
5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0
Source: OECD Main Science and Technology Indicators database. 23
More government support for business R&D would improve technology adoption
0.45 0.40 0.35 0.30 0.25 0.20 0.15 0.10 0.05 0.00
LVA SVK CHE LUX EST ROU GRC LTU FIN DNK DEU ESP TUR SWE POL CZE IRL SVN PRT NOR NLD HUN AUT ITA BEL KOR ISL GBR FRA
Direct government funding and tax support for business R&D % of GDP, 2018 or latest available year 0.45 0.40 0.35 0.30 0.25 0.20 0.15 0.10 0.05 0.00
Source: OECD R&D Tax Incentives database. 24
Infrastructure needs upgrading Infrastructure indicator score From 0 (lowest score) to 100 (highest score), 2019 100
90
90
80
80
70
70
60
60
50
50
COL CRI MEX TUR NZL EST NOR LVA CHL ISL IRL LTU GRC SVN SVK AUS HUN CAN POL OECD ISR FIN PRT CZE SWE ITA LUX DNK BEL USA GBR AUT FRA DEU ESP KOR JPN CHE NLD
100
Note: The Infrastructure indicator of the Global Competitiveness Index 4.0 assesses the quality and extension of transport infrastructure (road, rail, water and air) and utility infrastructure (electricity and water). Source: World Economic Forum, The Global Competitiveness Report 2019, http://www3.weforum.org/docs/WEF_TheGlobalCompetitivenessReport2019.pdf.
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