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Eresko Artur · When good deal of money does not buy happiness

Eresko Artur · When good deal of money does not buy happiness

The total volume of deposits of undertakings and residents of Latvia after a little outflow in January – February reached a new record — 10.5 billion euro. Over a month deposits of residents grew by 3.6% or by 390 million euro.

 

But the lion’s share of expansion of deposits was generated by balances on corporate accounts. The rates in the private household segment were rather moderate.

Deposits of undertakings jumped during a month by 5.1%, over the year — by 18.8%. Increase of money on accounts of private households was much more modest — by 0.7% and 6.4% respectively.

You’d think that expansion of deposits on accounts of residents is good. The bad news is that too much money lies idle and does not work in the economics. The undertakings are tired of waiting for lagging European programmes. The politicians can’t wait for proper growth of turnover of the national economics and rising rates of GDP. But the bankers in the period of negative interest rates in the wholesale resource market and on accounts with the central bank miss percentage of profits.

Things have reached the point where representatives of large Scandinavian banks start speaking openly about a possibility to introduce negative interest rates on extra large deposits of high profile customers. Yet a year and a half ago, when the European Central Bank introduced a negative deposit rate for commercial banks, representatives of Latvian credit institutions declared with one voice: our customers would not pay extra for deposits. Now the former assurance does not sound in rhetoric of the bankers. It must be admitted that so far follows a reservation: this trend would not affect depositors with small sums.

But money stays on accounts and the owners do not hurry to channel funds to investments and co-financing of banking credits. As a result – the volume of new loans is insufficient to compensate repayment of old ones. Thus, in February the bank portfolio of loans accommodated to residents of Latvia continued decreasing as to the loans provided to private households and non-financial businesses. Growth was observed only in terms of loans disbursed to non-bank financial institutions.

According to information of the Bank of Latvia, the balance on loans accommodated by the banks to the local undertakings and private households in February reduced by 0.1%: non-financial businesses — by 0.1%, private households — by 0.2%. The balance on loans accommodated to non-financial businesses reduced by 2.2%, but the balance on loans accommodated to private households — by 4%.

Unfortunately, we can very likely forecast that similar trends would be observed also in the future: development of lending and depositing by private households can appear rather moderate also in the subsequent months of 2016.

 

Artur Eresko (Артур Ересько) - Candidate of Economic and Legal Sciences.

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    If for European policy the year 2017 promises to be complicated (elections, Brexit, unpredictable relationship with new government of the USA, trade wars with Russia), while in the economic aspect the new year promises to be quite not bad. At least, for the eurozone countries.

     

    The past year was distinguished by controversial signals concerning the economic growth in the eurozone, however, in general, as a result, positive news prevailed. The eurozone in 2016 demonstrated its soundness under the influence of internal and external shocks.

    Despite strong tension in the market in January and February of the past year, Brexit and continuing weakening of the global market, trust of business and of consumers in the eurozone remained amazingly stable. GDP, according to a tentative forecast, grew in 2016 by substantive 1.6%. So, the past year became the second year of a visible growth of the zone of Euro.

    Today we can presume that the moderate rates of recovery of the economy of the currency block shall preserve also in 2017 – GDP of the region shall grow yet by 1.5 %, at the least.

    The key risk factor for the European economics this year is the policy. Europe this year will again encounter a clear-cut political uncertainty, which might affect determination to invest.

    This is about elections scheduled in Europe to 2017: in the Netherlands, in France, in Germany and, probably, in Italy. After the populist surprises in Great Britain and in the USA a similar result in Germany cannot be ruled out.

    Anyway, in Germany the parliamentary elections ought to take place this year, which will result in the election of the chancellor of the country. France will elect its president, in the Netherlands — parliamentary elections. In Italy the situation is different: resigned at the end of the last year from the post of Prime Minister Matteo Renzi did not exclude in the middle of December that early parliamentary election might take place in June 2017.

    Nevertheless, so far we can forecast the growth of investments in the eurozone this year by 2.5%. This is, however, slightly less than 3%, achieved in 2015 and in 2016.

    While inflation in the eurozone is forecasted at the level of 1.5-1.8 per cent.

    The eurozone has lived for several years under the low inflation condition, even the risk of deflation was emerging, which threatened the process of recovery of economics of the region. This year would considerably weaken or even remove the low inflation risk.

    Here it is important to mention that in December last year inflation in the eurozone already jumped by half a percentage point – to 1.1%, which practically was completely caused by oil price hikes. There are not yet any signals of a new fall in price of a barrel, and there is no reason to be worried of a stop of rise in consumer prices in the eurozone countries.

     

    Artur Eresko (Артур Ересько), candidate of Economic and Legal Sciences.

  • Eresko Artur · Foreign trade: the deficit shrank to the minimum

    The jerk of woodworking industry in September failed to compensate hard landing of export of oil and grain crops. In general, export of Latvian goods in September as compared to the same month of the previous year declined by 2.7%. Over nine months of this year the fall in export of goods made up 1.6% as compared to nine months of 2015.

     

    If to consider in annual terms, then the largest share of contribution to September fall is attributable to re-export. Exactly the fact that the volumes of export of minerals (oil and petroleum products) continued falling (-33.1% in September). This partially can be explained by recent official message on gradual termination of export of Russian petroleum products through Baltic ports. Based on sentiment prevailing in Russian state-owned enterprise Transneft, as well as determination of the Russian party to load, first and foremost, its ports at Saint Petersburg and Leningrad Oblast, most probably, no positive trends in this industry are forthcoming either.

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    Apart from oil and grain crops, the decline in export was also marked in such segments as mechanisms and equipment (-8.2%) and metal ware (-6.3%).

    In its turn, woodworking keeps on delighting, where the annual growth of export achieved 10.1% (inter alia, the gain in export to Great Britain made up 26%).

    Fears associated with Brexit doubled the energy of Latvian exporters of wood and wood products, who are hurrying to sell as much as possible before exit of Great Britain from the EU. But the date of this monumental for Europe event becomes more and more uncertain. So, the Supreme Court of Great Britain took a decision that the government may not start the Brexit procedure without approval by the Parliament. What would eventually decide the servants of British people is unknown. Anyway, it means postponing of the moment of kiss off, which is positive news for Latvian exporters.

    Moreover, the general growth was facilitated by export of furniture (30.9%) and chemical products (7.6%).

    Nevertheless, the deficit of foreign trade of Latvia in September shrank to the lowest over the recent year level. In September the deficit of foreign trade in goods made up 87.1 million euro and this is the lowest index since 2010.

     

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  • Eresko Artur · Construction projects are waiting for a signal from Brussels

    Latvian statisticians have calculated the number of houses, workshops and roads that have not been built.

     

    Last year, in comparison with 2015, the volumes of construction products in comparable prices for calendar-aligned data decreased by 17.8%. In absolute terms, the fall was 318 million EUR.

    Overall decline does not look so terrible when looking at construction of engineering facilities in 2016 where 33.3% collapse was recorded.

    In 2016, the decline was noted in almost all areas of engineering construction, including ports, waterways, dams and other hydraulic structures - by 31.3%; bridges, overpasses and tunnels - by 29.9%, motorways, streets, roads, runways and railways - by 29.5%.

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    Not everything is so bad in the residential sector. During a year, the increase in construction of residential buildings was 2%. Moreover, if compare the fourth quarter of 2016 with the same period of 2015, then can speak of a boom: construction of residential buildings has increased by 36.5%!

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    Thus, development of construction industry is hampered by low utilization of EU structural funds. Although for 2016 a decline in cash flow from the EU coffers was predicted, at the beginning of the year it was impossible to foresee that the financial flow would become so low and, as a consequence, would affect so much the volumes of construction. As a result, the current drop in construction is comparable to the fall in output in the 2008-2010 crisis.

    Question of future growth of the construction industry should be put not to Latvian builders but to Brussels bureaucrats who have demonstrated their unpredictability in transferring European subsidies to poor EU countries.

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    It can be also predicted when these construction projects will begin to close again. In 2020, European financial assistance will be sharply reduced. It can be said for sure. But it is, unfortunately, impossible to assert that by this time also private and public investments in the construction sector will grow sharply.

     

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