Can crisis do better for the economy?

As a Bruegel think tank study shows, yes it can and yes it can to the Baltic States. It did an assessment of 24 EU Member States according to their output and productivity indicators. We did observe Estonia, Lithuania, Latvia were among worst performers in losses on aggregate output and increased unemployment. But on the other hand these countries were leading in a positive change on export markets and in low labour costs in terms of wages and compensations. Even the latest trend in productivity change is on a much more positive note for Lithuania and Latvia.

In the meantime this restructuring is gaining its fruit with an evidence of latest developments in rising labour qualification which is relatively higher after the crisis. This in turn had side effects of higher unemployment rather of a temporary nature where rebounds can be observed for 2010/2011, however subdued in 2012 H1.

Now we do observe, that the crisis has created solid starting positions to regain and improve competitiveness by restructuring labour and product markets as we call – through internal devaluation. Before the crisis in 2008/2009, the construction bubble worked as an incubator or gravitating centre for a low skilled labour, unemployment levels of which have jumped to nearly 42 per cent, rising total unemployment level on the Baltic States up to 18-20 per cent. After this peak we have noticed a structural shift to higher value added sectors of services and industry but combined with a higher emigration pattern, which in particular was evident in Lithuania. According to Eurostat data in 2012 Q2 we observe a total unemployment of 10.9 percent in Estonia, 13.7 in Lithuania and 15.3 in Latvia.

The next policy measures remain important in education especially in creating links to the labour market demands in the short-term perspective. Effective handling of supply side measures could be helpful to reduce structural unemployment to a minimum. And finally, every restructuring in economy, if we want it to sustain, should be first of all supported by stable macroeconomic environment, strong discipline and targeted growth enhancing consolidation measures. This was successfully achieved by the Baltic states – by Estonia, which was granted membership in the euro area and Latvia with Lithuania successfully following its footsteps for a target date of 2014. This shows us a good example that a key factor behind macro picture is the competitiveness attained by targeted structural measures which should not be relieved (even in ‘good’ times).

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