Supply shock may cause biggest harm to Estonia in Baltics - Coface

  • 2020-03-11
  • LETA/BNS/TBT Staff

TALLINN – Declining imports from China may result in a so-called supply shock, which in the Baltics may impact Estonia the hardest, Grzegorz Sielewicz, economist at the international credit insurance group Coface, said on Wednesday. 

Sielewicz said that compared with the global outbreak of SARS in 2003, China is more strongly connected with the world economy now. China's share of global gross domestic product (GDP) grew from 6 percent in 2002 to 17 percent in 2019. Its share in global trade meanwhile increased from 4 percent to 11 percent during the same period.

"The biggest impact to be felt soon is to do not only with exports, but also imports. A reduction in the supply of Chinese components could be covered by local manufacturers in other countries, but not completely made up for by them. In addition, higher costs of inputs may cause higher inflation in the Baltics," the economist said.

Sielewicz observed that the Baltic region does not account for a significant portion in the import of intermediate products from China.

"In this Asian countries, as well as the United States, Mexico and Australia are much more affected. Where Cambodia and  Vietnam import over 30 percent of their exports of intermediate products from China, in the case of Estonia that ratio is 7.7 percent, in the case of Latvia 2.4 percent and in the case of Lithuania 1.8 percent," he said.

Sielewicz said that, indeed, of the Baltic countries, Estonia may be affected by a so-called supply shock the most. Of countries of Central and Eastern Europe, only Poland and Czechia are importing more  intermediate products from China, he said.

The sectors in the Baltics that may suffer from a supply shock as a result of a long-term shutdown of factories in China are textile and garments, in whose case the share of the import of intermediate products of Chinese origin is 38.6 percent in Estonia, 10.4 percent in Latvia and 14.1 percent in Lithuania.

In computers and electronics it is 26.6 percent in Estonia, 12.2 percent in Latvia and 10.5 percent in Lithuania, in machinery and equipment 17.1 percent in Estonia, 4.5 percent in Latvia and 3.6 percent in Lithuania, and in non-metal minerals 8.5 percent in Estonia, 5.1 percent in Latvia and 10.2 percent in Lithuania.