Statistics Lithuania reports that, according to the labour force survey data, the number of the unemployed in the country in iii quarter 2007 was 63.5 thousand, i.e. The lowest over the recent 5 years. As compared to iii quarter 2006, the number of the unemployed decreased by 27.3 thousand persons, or by one-third. Over the year, the number of young unemployed persons (aged 15-24) decreased from 15.2 to 13.4 thousand.
The jobless rate dropped to 3.9 percent from 4.1 percent in the previous three-month period. The chart below shows the evolution in the Eurostat harmonised unemployment rate, which is calculated slightly differently, but the picture is broadly the same.
Lithuania's jobless rate has been falling since 2004. When the country joined the European Union the rate stood at 13 percent. Lack of available labor has forced employers to raise salaries, which accelerated an annual 18 percent in the third quarter. The unemployment rate has fallen steadily as people have emigrated to those European states that have opened their labor markets. Top destinations for Lithuania's migrants include the U.K., Ireland and the U.S., the statistics department said. Claus Vistesen has examined the Lituanian situation in some depth in "Lithuania Under the Loop" and "End of the Road in Lithuania". This twin pincer, of rapid economic growth plus large scale out migration is increasingly producing severe overheating, labour shortages and inflation all across the EU10 (with the honorable exception of Hungary which is spiraling downwards into recession). To the issue of migration must be added the long term presence of below replacement fertility, which means that new entrant cohorts are very small, and cannot compensate for the loss, and low male life expectancy, which means that poor health makes it very difficult to raise participation rates among older workers.
And all of this, of course, means that inflation goes up and up. In fact Lithuania's inflation rate accelerated in November to the fastest pace in a decade, deepening concern the Baltic nation's economy may be overheating. The inflation rate rose to 7.8 percent, the highest since December 1997, from 7.6 percent in October, according to the Vilnius-based statistics office earlier this week. Prices rose a monthly 1.1 percent, compared with 1.5 percent in October.
Lithuania is struggling to contain consumer-price growth as the economy expands at the second-fastest pace in the European Union after Latvia. Gross domestic product rose 10.8 percent in the third quarter. On Dec. 7 Fitch Ratings followed Standard & Poor's in cutting Lithuania's credit rating outlook, citing the growing risk of an abrupt slowdown triggered by inflation.
To cap it all gas prices are scheduled to rise 69 percent for Lithuanian citizens next year. Food costs, which constitute the biggest item in the consumer basket with a 25.9 percent weighting, rose an annual 15.4 percent in November. Household expenses such as gas, water and electricity, the second biggest category in the index, rose 11.3 percent.
Same Situation in Bulgaria
Bulgarian inflation rose again last month, reaching 12.6 pct on an annual basis (as measured by the Bulgarian statistics office index of major groups), largely as a result of rising food prices. The index had fallen back (to 12.4%) in October on a year on year basis from September's high of 13.1%. The Bulgarian index rose by 1.6 pct in November from the figure for October the National Statistical Institute said in a statement. Here's a chart for the Bulgarian index and the EU harmonised index. The reason the HICP is consistently lower is largely a question of the differing weights attributed to food in the EU wide measure, but the local Bulgarian index may well be a much better reflection of the inflation situation on the ground in Bulgaria, since being a comparatively poor country food is a significant part of the household budget.
And in Romania
Well here is the Romania inflation chart, I wouldn't say the November figure was exactly good news, but a drop in inflation to an annual 6.67% from an annual 6.84% isn't bad news at any rate, unless you thought inflation was going to suddenly go away it isn't.
On one level you might have thought that the rot had been stopped, but it's not that simple. The month on month rate is 0,93, which is down from last months 0,97. But if we look at the components, then food rose 1,17% month on month, while services rose 1,21 month on month. In October food was up 1.3% over September, while services where only up 0,98. So food seems to be slowing, but price increases in services are accelerating (pass through) and this is not good news.
Migration and Labour Shortages?
Of course the big problem with all this inflation is the danger of a wage price spiral, given the constraints which have been placed on the local labour markets by low male life expectancy, declining populations, heavy out migration and years and years of very low fertility.
According to Romanian Labor Minister Paul Pacuraru, quoted in the newspaper Ziarul Financiar, Romania needs at least another 300,000 workers to meet current needs and will need more than 1 million within a decade.
The labor shortage, Pacuraru said, is caused partly by a migrating workforce and partly by a declining population, and is most acute in construction, and the textile, automobile and food processing industries.
Maybe he has been reading this blog (and here, and here).
Actually, according to the UK Daily Telegraph Romania's finance minister, Varujan Vosganian, aims even higher, saying Romania lacks half a million workers."We need more engineers, mechanics and bricklayers," he is quoted as saying "We have a labour deficit of 500,000 employees."
And he wasn't talking about the elites - doctors and IT programmers gone to make their fortune elsewhere, though that would be damaging enough. Romania needs its skilled labourers to return - the people who are going to build up the infrastructure that the country so severely lacks. But when we look at the wage differentials, this idea of a mass return would seem to be a forelorn hope to me, in Latvia, in Poland, in Ukraine or in Romania.
So the simple issue is, what is now the normal capacity neutral growth rate for Romania at this point (remember this will get less as the population continues to decline)? That is, what is the annual growth rate which Romania is capable of without seeting off the sort of inflation we are seeing at the moment? Noone really knows, but it is obviously well below the rate Romania is currently growing at.
Second question: when and how will the adjustment come?
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