News Column

SWEDBANK-2014: a Year of New Opportunity or of False Hope?

February 21, 2014

ENP Newswire - 21 February 2014

Release date- 20022014 - 2013 saw sluggish or non-existent economic growth across the developed world, a rise in the stock markets of developed economies, a fall in the stock markets of emerging economies, recovering trust in the euro zone and base rates close to zero.

These latter factors generated hope that the global economy would start picking up faster in 2014 - something you might expect when reading the headlines in the financial press at the start of the year.

Yet these factors should also promote caution. The stock index levels of developed markets are partially supported by higher cash flows, but on the other hand the real growth of the economy and inflation are close to zero. At the same time, real property prices, which are not taken into account in inflation calculations, continue to rise slowly but surely. On the whole this means that money has reached property prices, but not the consumer. The debt burden of developed economies is still high, and still rising. There is no way of knowing when or how it will be reduced to any significant extent. But it seems that investors have become accustomed to the situation: at least the rates of return in the stressed economies of the euro zone have fallen considerably and they are able to refinance their obligations on the market. This is a sign of a recovery of trust in the euro. The collapse of the monetary union is no longer under discussion. Most countries with an excessive debt burden have reduced their expenses, and this has improved the budgetary situation. However, Europe has failed to make the vital structural changes required to take the economic reality of the present into account. European countries are not at the forefront in the world: tax rises, energy prices on the up, mostly rigid labour legislation and ageing populations do not aid a rise in competitiveness by any stretch of the imagination. If the euro zone states do not make the necessary structural reforms, the average living standard in the euro area will be just 60% of the US average by 2023. This is a depressing prospect.

As for Estonia, there is reason to be more optimistic. Our economy is small and export-based. Our national debt is virtually non-existent and the private sector debt burden does not impede growth. Our financing does not depend on foreign markets. We have the luxury of choice. However, exports - our main growth engine - could be our main vulnerability. When we look back at the start of 2009, it seems clear that once the global economy freezes, export-dependent countries are hit hardest, as happened to Singapore, South Korea and Taiwan at the time. Our well-being also depends on the health of the economies of our export partners. Fortunately, those of many of our main partners, such as Sweden, Russia and Germany, are in relatively good condition. Of course, these countries also depend on exports and developments in the global economy. Regardless of how developed economies behave, there are always emerging economies where the opening up of the economy and people's need to improve their living conditions will result in economic opportunities.

2014 could well result in the same situation we found ourselves in a few years ago when our entrepreneurs had to find new foreign markets. So, we need to be dealing more with those newer markets with stronger economic growth engines as well as completely new export destinations. In doing so, we will reduce our dependence on our main export partners. The 2009 experience demonstrated that Estonian exporters are able to respond quickly. Now is the perfect time to act, while the debt burden of our enterprises remains relatively low and at a time when changing global demand offers great opportunities. Consumers everywhere are increasingly seeking small quantities of specific goods. They want high-quality items that look different from those their neighbours have, and they want them fast. This is the moment for Estonia - our manufacturing and exports are dispersed, our small manufacturers are flexible and fast and we can provide a broad choice of logistical solutions. All of these things are clear competitive advantages.

The competitiveness and flexibility of Estonian business and a sound economy give us the chance to look for new markets. Besides, the global economic standstill will make us so in the end anyway. The sooner we think about it, the better. Good luck in looking for new opportunities!

For more stories on investments and markets, please see HispanicBusiness' Finance Channel

Source: ENP Newswire

Story Tools