State of the Region-Report 2014

The Top of Europe: Emerging from the Crisis, Adapting to the New Normal

Helge J. PedersenGlobal Chief Economist

NORDEA

Dr. Christian H.M. KetelsInstitute for Strategy and Competitiveness

Harvard Business School

Timo SummaSchool of Business

Aalto University

Full report: http://www.bsr2014.eu/wp-content/uploads/BDF_SORR_2014_web.pdf

Economic climate in the Baltic Sea Region

Global Chief Economist Helge J. PedersenTurku 3. June 2014

Baseline scenario – fragile growth

• World growth is driven by the advanced economies – Emerging Markets are having problems

• BSR looks more promising than rest of Europe: – Baltic recovery led by Latvia and Lithuania– Sweden to lead growth among the Nordics – Germany to pull Poland– Russian stagnation

• Geopolitical risks related to the situation in Ukraine/Russia

• Lenient monetary policy for long time yet

3

Return of growth – but still risks ahead

4

Economic sentiment is lagging the EU for the first time since 2008

5

Labour market improvement …

6

…with big country deviation – youth unemployment pose a big political problem in many countries

7

Government debt : The best in class

8

Less economic misery than in most other places on earth

9

State of the Region-Report 2014

Competitiveness and Collaboration Across the Baltic Sea Region

Dr. Christian H.M. KetelsInstitute for Strategy and Competitiveness

Harvard Business School

The Permanent Prosperity Loss from the Crisis

15000

20000

25000

30000

35000

40000

45000

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

NAFTA

GDP per capita (PPP adjusted) US-Dollar,

EU-27

Baltic Sea Region

Prosperity Dispersion Within Cross-National Regions2000 - 2013

1

2

3

4

5

6

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Ratio of GDP (PPP adjusted) per Capita, Richest to Poorest Country per Region

Baltic Sea Region

EU-15

EU-27

The New Normal?

BSR EU-15 NAFTA BSR EU-15 NAFTA

Before the Crisis After the Crisis

Labor Productivity

Labor Mobilization

Prosperity Growth

accounted for by:

Note: Annual Growth Rates 2004-2008 and 2012-2013; labor mobilization = hours worked per capita, labor productivity = GDP per hour workedSource: Conference Board (2014)

4.5%

3.0%

1.5%

0%

Baltic Sea Region ExportsTotal Value over Time

0

200

400

600

800

1000

1200

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013*

ServicesOil/MineralsGoods

Export Values, in billion US-Dollars in Current Prices

Baltic Sea Region FDI Flows

0%

2%

4%

6%

8%

10%

12%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

FDI outflow - annualFDI outflow - 3-year averageFDI inflow - annualFDI inflow - 3-year average

World market share

Overall Competitiveness and Prosperity, 2013

500

5000

50000

DenmarkIceland Sweden

Finland

Norway

EstoniaLatviaLithuania

Competitiveness Score, 2013

GDP per Capita, US‐$ (PPP adj.), 2013

HighLow

Germany 

Russia Poland

The Baltic Sea Region’s Competitiveness Profile 2013

Macro (18)

Political Institutions (22)

Rule of Law (22)

Human Development (21)

Context for Strategy and Rivalry (28)

Related and Supporting Industries (27)

Demand Conditions(23)

Factor Input Conditions(21)

Micro (23)

Comm. (16)

Innov. (19) Admin (27)Skills (23)

Logistic. (25)

GDP pc (21)

GCI (20)

Social Infra-structure and Pol. Institutions (20)

Macroeconomic Policy (21)

National Business Environment (24)

Company Operations and Strategy

(20)

Sour

ce: U

npub

lishe

d da

ta fr

om th

e G

loba

l Com

petit

iven

ess

Rep

ort

(201

3), a

utho

r’s a

naly

sis.

Significant advantageModerateadvantage

Neutral

Moderate disadvantage

Significant disadvantage

Capital (29)

Strength

Weakness

Cost of Doing Business: Government RegulationsBaltic Sea Region Countries

DenmarkyNorway

FinlandIcelandSweden

LithuaniayGermany

Estonia

59121314172122

Overall Rank ‘14Trading Across Borders

Registering Property

Construction Permits

Paying Taxes

Insolvency

Enforcing Contracts

Getting Credit

Protecting Investors

Starting a BusinessSource: World Bank (2014)

Subcategory

Latvia 24Poland 45Russia 92

440

460

480

500

520

540

560MathScienceReadingProblem solving

Mean score

Educational Performance PISA Study Results 2013, Selected Countries

Source: OECD (2014)

Key Trends Affecting the Region

GlobalizationKnowledge-

DrivenEconomy

Environmental Sustainability

Demographics Urbanization

Strengthening Governance of the EUSBSR

Better aligned…

…but in need of structure