Baltic Rim Outlook: Increased purchasing power creates new opportunities for Nordic companies
2007-11-22
Labour market developments in the Baltic Rim economies are spectacular.
In many ways they resemble developments in the Nordic labour markets, only much
more extreme. Thus, wages are growing by more than 30 per cent in Latvia, 6 million
new jobs have been created in Russia since 2000 and the unemployment rate has
fallen 7 percentage points in Poland since the EU accession in 2004.
- Among the Baltic countries
Estonia leads the way in the correction to more sustainable growth rates. We
are comfortable with our view that overheating risks are history even if
inflation continues to rise before the trend reverses, says Mika Erkkilä, Senior
Analyst, who is Nordea’s expert on economic developments in the Baltic
countries and Russia. Real estate prices are also reaching their turning point.
In contrast, the growth rate in Latvia is still far too high for policymakers
to feel comfortable. The red-hot pace in bank lending is slowing, but the very
large current account deficit has only stabilised, at best. Although real
estate prices have fallen since the spring, calling this trend a broad slowdown
would be premature. Lithuania has not developed a serious overheating problem -
at least not yet.
- Russia's fundamental
cyclical position is strong and the country is in the midst of an investment
boom, according to Mika Erkkilä. The value of Russian household consumption is already
twice as high as in Poland and the rapidly growing purchasing power of the
middle class opens up new opportunities for Nordic companies. Despite the upcoming
election season, Nordea does not expect that economic stability will be
jeopardised.
- The Polish
economy experiences strong growth driven by favourable dynamics in domestic
demand. Indeed, developments in the labour market continue to underpin strong
increases in household incomes, and companies are investing heavily to be able
to meet future demand, says Anders Svendsen, Nordea’s Poland analyst. This
suggests that growth is sustainable at a high level. Signs of overheating are
emerging, but the risk remains limited.
