Economics

Myths regarding collapse of the economies of the Baltic countries’ are misleading

27 August, 2014
  • After all three Baltic countries became members of European Union, their economies have grown with record rate;
  • By the level of economic development across EU, the Baltic countries are ahead of Bulgaria, Romania, Croatia, Hungary and Poland;
  • GDP per capita of Estonia in 2013 was equal to that of Czech Republic and Slovakia;
  • IMF has put Estonia in the list of advanced economies in the world;

 According to the World Bank data, after entering the EU, agricultural production has increased in all three Baltic countries, in specific in Estonia by 62.5%, Latvia – 58% and Litva – 36%.

Estonia, Litva and Latvia obtained membership of EU on 1stMay 2004. According to IMF data, notwithstanding the world economic crisis, in 2004-2013 economies of all three Baltic countries have increased with the record pace. In particular, in this period GDP per capita in Estonia increased by 102%, in Litva -133% and in Latvia by 153%.[i]According to Eurostat data, since entering the EU up until the world economic crisis (in 2004 -2008 period), the economy of Latvia increased in average by 10% per year, while economics of Estonia and Litva increased by 8.2%. These are the best indicators across EU countries. In the same period, economies of EU countries have increased in average by only 2.8 %.[ii]

In EU, in terms of economic development level, the Baltic countries are ahead of Bulgaria, Romania, Croatia, Hungary and Poland. Apart from this, in terms of GDP per capita, in 2013 Estonia has reached the level of Czech Republic and Slovakia.[iii]

IMF included Estonia in the list of advanced economies[iv], while the World Bank attributes all three Baltic countries to the list of high income countries in the world[v].

Shadow economy is a serious problem of all post-communist countries that are members of EU. However, improvements in this respect in the Baltic countries were evidenced particularly after entering the EU. The shadow economy as a percentage of GDP has decreased from 38.9% in 2003, to 28.5% in 2012; in Latvia, from 41.6% to 26.1% and in Litva from 31.9% to 28.5%[vi].

Apart from this, according to World Bank data, after entering the EU, in all three Baltic Countries the production of agricultural products has increased: In Estonia by 62.5%, in Latvia - 58% and in Litva by 36%[vii].

Inflation has dramatically increased in Baltic countries during the world economic crisis. Nevertheless, in the years following entry into EU (2004 -2013), the average level of inflation in Estonia, Litva and Latvia has been considerably lagging behind the same indicators before the entry into EU. Before 2004, the inflation indicators in these countries have in some instances been above 30%. In the recent years the situation in all three Baltic countries has considerably improved. In 2013, inflation in Estonia amounted to 3.2%, in Litva - 1.2% and in Latvia - 0.0%. In the same period average inflation rate in EU countries was 1.5%. [viii]

Unemployment in Baltic countries has considerably decreased since entry into EU up until the world economic crisis (2004-2008). The unemployment rate in Estonia decreased from 10.3% to 4.6%, in Litva from 12.6% to 4.3% and in Latvia from 11.6% to 6.1%.

Despite the deteriorated situation during the economic crisis, the unemployment rate has returned to the level existing immediately before the entry into EU only in Latvia (11.9%) according to 2013 Eurostat data. The existing unemployment rate in Estonia (8.6%) and in Litva (11.8%) is less than the rates at the time of the entry in EU and is around the average EU rate (10.8%).[ix]

The budgetary deficit as a percentage of GDP was gradually decreasing in Litva and Latvia before the world economic crisis, however it dramatically increased in the following years. Estonian budget was in proficit, but went into deficit once crisis started. Despite this, in recent years the situation improved. In 2011 Estonia returned to budgetary proficit. According to current data, across EU countries, Estonia is number 3 in the list of countries with the least budgetary deficit (-0.2%), while Latvia is on the 5th place (-1.0%). In 2013, in Litva the budgetary deficit was relatively high – 2.2%, however with this indicator Litva is ahead of 18 countries in EU and satisfies the requirements of the Stability and Growth Pact (requires deficit to be less than 3% of the GDP).[x]

The state debt in the Baltic countries, as well as generally in all EU countries, has substantially increased during the world economic crisis. However, compared to other EU countries, Litva, Latvia and especially Estonia are distinguished with relatively lower levels of state debt. According to Eurostat data, in 2013 Estonia is number 1 across EU countries with the least level of state debt to GDP (10%), Latvia is number 4th (38.1%), while Litva is 6th(39.4%)[xi].

 Davit Lelashvili

Source of the Myth:

"Sakinform”, 4 April

After attaining independence and entering into EU, the Baltic countries have lost all their economic potential and became outsiders among EU countries by the level of development … The Baltic countries have become leaders by the inflation rate and level of shadow economy ….production of agricultural products has decreased… the prices on the food, daily products and medicine have increased … unemployment, budgetary deficit and state debt have dramatically increased …

 


[i]International Monetary Fund, GDP per capita in Estonia, Latvia and Lithuania (2004-2013), current prices (U.S. dollars) URL:

http://www.imf.org/external/pubs/ft/weo/2013/01/weodata/weorept.aspx?sy=2004&ey=2013&scsm=1&ssd=1&sort=country&ds=.&br=1&pr1.x=49&pr1.y=7&c=946%2C939%2C941&s=NGDPDPC&grp=0&a

[ii]Eurostat, real GDP growth rate in EU countries (2002-2013) URL: http://epp.eurostat.ec.europa.eu/tgm/table.do?tab=table&init=1&plugin=1&language=en&pcode=tec00115

[iii]International Monetary Fund, GDP per capita in EU countries (2013), current prices (U.S. dollars) URL:

http://www.imf.org/external/pubs/ft/weo/2013/01/weodata/weorept.aspx?pr.x=43&pr.y=10&sy=2013&ey=2013&scsm=1&ssd=
1&sort=country&ds=.&br=1&c=946%2C137%2C122%2C181%2C124%2C918%2C138%2C964%
2C182%2C960%2C968%2C423%2C935%2C128%2C939%2C936%2C961%2C172%2C132%2C184%2C134%2
C174%2C144%2C944%2C178%2C136%2C112%2C941&s=NGDPDPC&grp=0&a

[iv]International Monetary Fund, World Economic Outlook (2014) URL: http://www.imf.org/external/pubs/ft/weo/2014/01/pdf/text.pdf

[v]World Bank, country classifications (2013) URL:

http://data.worldbank.org/about/country-classifications/country-and-lending-groups#High_income

[vi]European Commission, The Shadow Economy And Undeclared Work (2013) URL: http://ec.europa.eu/europe2020/pdf/themes/07_shadow_economy.pdf;

World Bank, Shadow Economies All Over The World (2010) URL: http://elibrary.worldbank.org/doi/pdf/10.1596/1813-9450-5356

[vii]World Bank, Crop Production Index, URL: http://data.worldbank.org/indicator/AG.PRD.CROP.XD?page=2

[viii]Eurostat, inflation rate in EU countries (2002-2013) URL: http://epp.eurostat.ec.europa.eu/tgm/table.
do?tab=table&init=1&plugin=1&language=en&pcode=tec00118;International Monetary Fund,inflation in EU
countries (1992-2013), average consumer prices (percent change) URL: http://www.imf.org/external/pubs/ft/weo/2013
/01/weodata/weorept.aspx?pr.x=56&pr.y=11&sy=1992&ey=2013&scsm=1&ssd=1&sort=country&ds=.&br=1&c=946%2C137%2C122%2C181%2C124%2C918%2C138%2C964%2C182%2C960%2C968%2C423%2C935%2C128
%2C939%2C936%2C961%2C172%2C132%2C184%2C134%2C144%2C654%2C944%2C178%2C136%2C112%2C941&s=
PCPIPCH&grp=0&a

[ix]Eurostat, unemployment rate in EU countries (2002-2013) URL: http://epp.eurostat.ec.europa.eu/tgm/table.do?tab=table&init=1&plugin=1&
language=en&pcode=tsdec450

[x]Eurostat, general government deficit and surplus in EU countries (2002-2013) URL: http://epp.eurostat.ec.europa.eu/tgm/table.do?tab=table&plugin=1&language=en&pcode=teina200;

Eurostat, deficit and debt data (2013) URL:

http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/2-23042014-AP/EN/2-23042014-AP-EN.PDF

[xi]Eurostat, general government gross debt (2002-2013) URL: http://epp.eurostat.ec.europa.eu/tgm/table.do?tab=table&plugin=1&language=en&pcode=teina225;

Eurostat, deficit and debt data (2013) URL:

http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/2-23042014-AP/EN/2-23042014-AP-EN.PDF

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