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Latvia 2017 OECD Economic Survey boosting productivity and inclusiveness
1. 2017 OECD ECONOMIC SURVEY
OF LATVIA
Boosting productivity and inclusiveness
September 15th 2017, Riga Latvia
http://www.oecd.org/eco/surveys/economic-survey-latvia.htm
2. Main messages
1
• The Latvian economy is growing strongly, underpinned by
progress with economic reforms.
• Deeper integration into international trade is necessary to
catch up with high-income countries.
• Poverty and unemployment are still high. Access to jobs,
housing and health services need to improve.
3. Growth has been strong
2
75
80
85
90
95
100
105
110
75
80
85
90
95
100
105
110
2007Q1
2007Q3
2008Q1
2008Q3
2009Q1
2009Q3
2010Q1
2010Q3
2011Q1
2011Q3
2012Q1
2012Q3
2013Q1
2013Q3
2014Q1
2014Q3
2015Q1
2015Q3
2016Q1
2016Q3
2017Q1
Latvia Estonia Euro area
Real GDP, Index 2007 =100
Source: OECD (2017), OECD Economic Outlook: Statistics and Projections (database).
4. 3
Exports have gained market share
Source: OECD (2017), OECD Economic Outlook: Statistics and Projections (database).
Export performance indicator, moving average 2010=100
5. 4
Unemployment has fallen
Unemployment rate as % of labour force
Source: OECD (2017), OECD Economic Outlook: Statistics and Projections (database).
0
4
8
12
16
20
24
0
4
8
12
16
20
24
2010Q4
2011Q1
2011Q2
2011Q3
2011Q4
2012Q1
2012Q2
2012Q3
2012Q4
2013Q1
2013Q2
2013Q3
2013Q4
2014Q1
2014Q2
2014Q3
2014Q4
2015Q1
2015Q2
2015Q3
2015Q4
2016Q1
2016Q2
2016Q3
2016Q4
2017Q1
2017Q2
Latvia Euro area
6. 5
Wages have grown more than prices
Source: OECD (2017), OECD Economic Outlook: Statistics and Projections (database).
Growth of labour compensation per employee and consumer price inflation
-4
-2
0
2
4
6
8
10
12
-4
-2
0
2
4
6
8
10
12
2010Q4
2011Q1
2011Q2
2011Q3
2011Q4
2012Q1
2012Q2
2012Q3
2012Q4
2013Q1
2013Q2
2013Q3
2013Q4
2014Q1
2014Q2
2014Q3
2014Q4
2015Q1
2015Q2
2015Q3
2015Q4
2016Q1
2016Q2
2016Q3
2016Q4
2017Q1
2017Q2
%%
Worker pay Inflation
7. 6
Latvia is a top reformer
The 2017 Going for Growth reform responsiveness indicator
Source: OECD (2017) Going for Growth 2017 edition.
0
20
40
60
80
IDN
SVN
AUS
CAN
ISL
TUR
LUX
PRT
POL
CHE
NZL
ZAF
KOR
FIN
GBR
SVK
HUN
SWE
USA
COL
OECD
ESP
NOR
IND
JPN
DEU
DNK
NLD
CZE
EST
IRL
ITA
GRC
MEX
CHN
ISR
CHL
AUT
BEL
BRA
FRA
LVA
%
8. 7
Debt has fallen
Debt as % of GDP
Source: OECD (2017), OECD Economic Outlook: Statistics and Projections (database) and OECD National Accounts Statistics
(database).
0
40
80
120
160
200
0
40
80
120
160
200
2010 2011 2012 2013 2014 2015
%%
Households Non-financial corporations
10. 9
The gap in productivity remains large
-80
-75
-70
-65
-60
-55
-50
-45
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
%
Gap in GDP per capita of Latvia vis-à-vis the upper half of OECD countries
Source: OECD (2017), OECD National Accounts Statistics (database) and OECD Productivity Statistics (database).
11. 10
Poverty is high
Source: OECD (2017), OECD Social and Welfare Statistics (database).
Share of population with disposable income below the poverty line, 2015 or latest
0
3
6
9
12
15
18
0
3
6
9
12
15
18
CZE
FIN
NOR
LUX
SVK
AUT
BEL
IRL
SVN
GBR
OECD
PRT
ITA
GRC
ESP
EST
LTU
LVA
%%
12. 11
Income inequality remains high
Source: OECD (2017), OECD Social and Welfare Statistics (database).
Gini coefficient, scale from 0 (perfect equality) to 1 (perfect inequality), 2015 or latest available
0.0
0.1
0.2
0.3
0.4
0.5
0.0
0.1
0.2
0.3
0.4
0.5
ISL
SVK
SVN
DNK
CZE
NOR
FIN
BEL
AUT
SWE
LUX
HUN
DEU
KOR
FRA
CHE
IRL
POL
NLD
CAN
OECD
ITA
JPN
AUS
PRT
GRC
ESP
EST
NZL
LVA
ISR
GBR
USA
TUR
CHL
MEX
13. 12
Higher income, better housing and better
health would raise wellbeing
Source: OECD (2016), OECD Better Life Index- Edition 2016.
OECD Better Life Index, from 0 (worse) to 1 (best), 2016
0.0
0.2
0.4
0.6
0.8
1.0
Income and wealth
Jobs and earnings
Housing
Work and life balance
Health status
Education and skillsSocial connections
Environmental quality
Personal security
Subjective well-being
Latvia OECD
Civic engagement and
governance
16. 15
Productivity growth has slowed
Average annual growth of labour productivity
Source: OECD (2017), OECD Productivity Statistics (database).
0
2
4
6
8
10
0
2
4
6
8
10
1995-2005 2005-2016 1995-2005 2005-2016 1995-2005 2005-2016
Total Manufacturing Business sector services
%%
17. Trade could boost productivity and income
Domestic value added per worker embodied in foreign final demand, 2011
Source: OECD/WTO (2016), Statistics on Trade in Value Added (database) and OECD (2016), "Trade in Employment:
Core Indicators" in OECD Structural Analysis (STAN) Databases.
16
18. 17
Latvia must move up the value chain to
knowledge-intensive activities
Source: OECD (2013), Interconnected Economies: Benefiting from Global Value Chains, OECD Publishing, Paris.
19. 18
Many workers feel under-skilled at the time of
hiring
Source: CEDEFOP (2016), “Skills Panorama” (http://skillspanorama.cedefop.europa.eu).
Share of employees reporting lower skill level than required
for their jobs at the time of hiring, 2014
0
10
20
30
40
50
0
10
20
30
40
50
LUX
ESP
SVN
DEU
NLD
BEL
GRC
ITA
AUT
HUN
SWE
POL
GBR
FRA
PRT
DNK
IRL
FIN
CZE
SVK
LVA
LTU
EST
20. 19
Skill shortages are holding back participation
in global value chains
Source: CEDEFOP (2016), “Skills Panorama” (http://skillspanorama.cedefop.europa.eu).
0
3
6
9
12
15
0
3
6
9
12
15
LUX
PRT
DEU
AUT
ITA
ESP
GBR
SVN
NLD
FRA
DNK
BEL
POL
HUN
GRC
SWE
IRL
SVK
CZE
FIN
LVA
LTU
EST
%%
Share of employees reporting lower skill level than required for their current jobs, 2014
21. 20
Few firms cooperate with research institutions
0
5
10
15
20
25
0
5
10
15
20
25
ITA
LVA
LTU
PRT
CHE
GRC
LUX
HUN
CZE
SVK
POL
FRA
DNK
NLD
SWE
DEU
EST
NOR
ISL
BEL
SVN
FIN
AUT
%%
Source: Eurostat (2016), Community Innovation Survey (CIS).
The share of firms engaging in research cooperation
% of all product and/or process-innovating firms, 2012-14
22. 21
Low debt recovery hampers access to credit
0
20
40
60
80
100
0
20
40
60
80
100
TUR
CHL
GRC
EST
HUN
LUX
CHE
LVA
SVK
POL
ISR
ITA
CZE
MEX
OECD
PRT
SWE
ESP
FRA
USA
AUS
AUT
NZL
DEU
KOR
ISL
CAN
IRL
DNK
GBR
SVN
NLD
BEL
FIN
JPN
NOR
%%
Source: World Bank (2017), Doing Business 2016: Measuring Regulatory Quality and Efficiency (Resolving insolvency database).
Average recovery rate from insolvency , 2016
23. 22
Infrastructure lags behind peer countries
Global Competitiveness Index, scale from 1 to 7 (best)
2016-17
0
1
2
3
4
5
6
7
0
1
2
3
4
5
6
7
Latvia Estonia Lithuania Finland
Source: World Economic Forum, "The Global Competitiveness Report 2016-2017".
24. 23
Provide more generous grants for students attending
vocational schools who are from low-income families.
Expand grants for university students and target them to
students from low-income families.
Increase government funding of innovation promotion
programmes with strong evaluation results.
Strengthen the specialisation of judges to improve the
insolvency regime.
Apply the same cost-benefit tests to large national
infrastructure projects as are applied to EU-funded
projects.
Recommendations to seize opportunities in global
markets to catch up with high-income countries
26. 25
Unemployment is high in some regions
Source: Central Statistical Bureau of Latvia.
0
4
8
12
16
20
0
4
8
12
16
20
Latvia Pierīga Riga Vidzeme Kurzeme Zemgale Latgale
%%
Unemployment as % of the labour force, 2016
27. 26
High unemployment keeps poverty high
Source: Central Statistical Bureau of Latvia.
0
9
18
27
36
45
0
9
18
27
36
45
Latvia Riga Pierīga Kurzeme Zemgale Vidzeme Latgale
%%
Share of population with disposable income below 60% of median household income
28. 27
Access to affordable rental housing is low
0
10
20
30
40
50
60
70
80
0
10
20
30
40
50
60
70
80
LTU
MEX³
POL
EST
SVK
HUN
CHL³
LVA
SVN
PRT
GRC
CZE
ITA
ESP
NOR
IRL
AUS³
ISL
KOR
GBR
FIN
LUX
FRA
CAN³
USA³
BEL
AUT
CHE
SWE³
DNK³
NLD³
DEU
%%
Rent (private)¹ Rent (subsidized)²
Share of rental housing, low-income households, 2014 or latest year
Source: OECD (2016), OECD Affordable Housing Database.
29. 28
Spending on active labour market policies is
low
Source: OECD (2017), OECD Employment and Labour Market Statistics (database).
Public expenditure, % of GDP, 2015 or most recent
0.0
0.4
0.8
1.2
1.6
2.0
2.4
0.0
0.4
0.8
1.2
1.6
2.0
2.4
MEX
USA
JPN
LVA
ISR
CHL
EST
SVK
AUS
GBR
CAN
SVN
LTU
NZL
KOR
CZE
POL
ITA
OECD
NOR
PRT
IRL
CHE
ESP
DEU
LUX
BEL
AUT
NLD
HUN
FIN
FRA
SWE
DNK
30. 29
Out-of-pocket payments in healthcare are high
Source: OECD (2017), OECD Health Statistics (database)
0
10
20
30
40
50
0
10
20
30
40
50
FRA
LUX
USA
NLD
SVN
DEU
JPN
CZE
DNK
NOR
CAN
GBR
IRL
SWE
TUR
ISL
BEL
AUT
SVK
FIN
OECD
EST
ITA
POL
ESP
ISR
PRT
CHE
HUN
CHL
GRC
KOR
MEX
LVA
Household out-of-pocket expenditure, % of total current expenditure on health care, 2015
31. 30
Workers pay high fees for private pensions
0.0
0.4
0.8
1.2
1.6
2.0
0.0
0.4
0.8
1.2
1.6
2.0
FIN
DNK
NLD
LUX
DEU
GBR¹
PRT
ISL
NOR
BEL
AUT
CAN
ISR
NZL¹
HUN
CHE
CHL¹
POL
AUS
GRC¹
TUR¹
SVK
SVN
ESP
CZE
EST
LVA
%%
Operating costs of the private pension system
% of assets under management, 2015
Source: OECD (2017), OECD Pensions Statistics (database).
32. 31
Expand the mobility programme, which provides temporary
support for relocation and transport to unemployed moving
to a job.
Provide more funding for low-cost rented housing in areas
of expanding employment.
Improve legal certainty in rental regulation and encourage
out-of-court procedures.
Simplify the administrative process for obtaining a building
permit.
Promote the provision of adult education by vocational
education schools.
Lower operating costs in the compulsory private pension
system, for example by introducing a low-cost fund as the
default choice.
Reduce health care out-of-pocket payments especially for
the low-income population.
Recommendations to improve access to jobs,
housing, and health services
34. Government debt is low
33
Source: OECD Economic Outlook 101 database. National Accounts definition of government debt (not Maastricht).
0
40
80
120
160
200
240
0
40
80
120
160
200
240
EST
LUX
NZL
NOR
CHE
KOR
LVA
AUS
CZE
DNK
SWE
LTU
SVK
ISR
ISL
POL
NLD
FIN
DEU
IRL
HUN
SVN
CAN
AUT
USA
OECD
ESP
GBR
FRA
BEL
PRT
ITA
GRC
JPN
General government debt % of GDP, 2016
35. 34
Informality remains high
Source: Putniņš, T. and A. Sauka (2017), "Shadow Economy Index for the Baltic Countries", Stockholm School of Economics in Riga.
Estimated size of the shadow economy and underreported corporate profits and wages, 2016
36. 35
Taxes on low wages are high
Source: OECD (2017), OECD Tax Statistics (database) and OECD estimate of tax reform effect.
Taxation of labour income, 2016
% of total labour compensation, single person at 67% of average earnings without children
0
10
20
30
40
50
0
10
20
30
40
50
CHL
NZL
ISR
MEX
KOR
CHE
IRL
AUS
GBR
CAN
USA
ISL
NLD
JPN
LUX
OECD
NOR
DNK
POL
TUR
ESP
GRC
PRT
EST
FIN
SVN
SVK
CZE
ITA
SWE
LVA
AUT
FRA
DEU
BEL
HUN
%%
after tax reform
Tax reform approved in 2017 will reduce taxes on profits and wages from 2018.
37. 36
Raise spending to address pressing structural and social
policy priorities.
Make better use of information and communication
technology for tax law enforcement.
Strengthen the budgetary independence of the
Corruption Prevention and Combating Bureau (KNAB).
Remove political influence in the appointment of judges.
Reduce taxes on low wages further.
Raise more revenues from the taxation of real estate and
energy.
Broaden the base of business income taxation by
removing tax exemptions.
Recommendations for budget and tax policy to
support inclusive growth
38. 37
For more information
http://www.oecd.org/eco/surveys/economic-survey-latvia.htm
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