Ülo Ennuste Economics

papers and articles in wordpress

Friendly Information Letter to the Honorable First E-Resident (Draft 22.X 15 do not quote)

Sine ira et studio
 Sir:
Concluding Statement of the 2015 Article IV Mission, October 19, 2015“
With most strong and almost clear factual statements as usual like these:
 a)„investment remains subdue“ b) „tightness in the labour market suggest only limited slack in the economy despite moderate growth.“ c) „administrative price cuts in higher education.“ (Including heavy cuts in R&D, üe) d) „Gross external debt is rather high but net debt is negative (meaning: „net lending is positive“ – this is theoretically anomalous idiosyncratic case for peripheral small country benefiting from the EU state aide funding, üe) and the negative net international investment position is fully covered by FDI“ (interesting, üe). e) „Despite weak exports, the current account is expected to be in a surplus position of about 2 percent of GDP this year on account of weaker investment.“ (if „on account of weaker investment“ – then theoretically the complementary statement about financial account situations should be added, üe)
Just as usual the Report continues rather vague/fuzzy declaration and reference to the common development risks and „other items“ that had to be taken in the final declaration into confirmation – towards the end, the final declaration reads e.g.:
  1. “ Estonia’s financial sector is closely integrated with the Nordic-Baltic region. The cross-border banks that make up most of the financial sector are exposed to a range of risks, especially in property markets, although they also have strong lines of defence. Potential shocks in the region could spill over to Estonia in the form of tighter credit supply as well as through trade channels. It will therefore be important to remain vigilant and continue close cooperation with home-country authorities. In this context, regional cooperation in supervision and resolution should be reinvigorated, including through appropriate involvement of the ECB, which directly supervises the two largest Estonian banks.“ –
„The remaining negative output gap of less than ½ percent of GDP should close by 2017. “ – this gap was probably closed already in 2014 as employment and investment and R&D expenses have trendily declined after Crisis and especially after beginning of the Hybrid War and consequently started erode potential GDP heavily – and more importantly: this gap most probably should be statistically correctly (including risks) indicated probably as between
 (-2)% and (+1,5) %
as this indicator is imputed by modelling
„but also guard against excessive wage growth until it takes hold. In this context, the planned deceleration in central government wage growth is prudent. Care must be taken to ensure that the rapid minimum wage increase does not set the pace for general wage developments—annual increases of 10 percent for several consecutive years are unsustainable.“ – Excessive wage growth in the present Estonia’s context may be definite as turnaround of specialists off Estonia – actually there is still no sign of it to see this kind of trend on the horizon
“6. A stronger and clearer emphasis should be put on raising productivity as the central goal of economic policy to achieve the technological transformation needed to sustain convergence (first of all emphasis should be put on control of investments outflow: see e.g.  http://www.ies.ee/iesp/No11/articles/08_Ulo_Ennuste ) support, a strong unit (alas these units already exist in the coalition parties Hinterzimmer’s – and – most importantly are obscurant strongly cutting R&D expenses – see Eurostat) in the Prime Minister’s office could be established …“.
P.S.: GDP indicator – that is strongly emphasized in the Report is according EU Commission Project „GDP and Beyond“ context among third rate criteria.

October 23, 2015 - Posted by | Uncategorized

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