OECD Economic Survey of Latvia 2022 - Presentation

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.

25

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This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area.

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