Analysts of Nordea, the largest banking group in
the Nordic countries and Baltic States, have forecast a gradual economic
recovery for the Baltic States this year and accelerated
and sustainable growth in 2011 and 2012. The group has improved its forecast
for Lithuania and Estonia
for this and the following year. Growth of 0.9% is estimated for Lithuania this
year, followed by 3.2% growth next year. Lithuania will still be challenged, however,
by two large dilemmas: how to revive the hard-hit labour market and how to ensure
the availability of loans for the indebted government in the international
markets at an affordable price.
‘The Lithuanian economy showed signs of recovery in 2Q this year. Even
though the growth started off from a very low level, salaries continued to
decline in the country, and the rate of unemployment was going up, we expect
that this year GDP will return to annual growth’, Annika Lindbladt, an analyst
for Nordea Markets, said.
According to the analyst, the expectations that exports would continue to
grow came true. The rapid growth of exports was the key push for GDP. Export to
Russia, the main export
partner of Lithuania,
accounted for major part of the growth. Russia
will remain an attractive market for Lithuanian investors: even though Nordea
Markets reduced the forecast rate of economic growth of Russia by 0.3%, it is still as high
as 5.7% this year and 4.8% next year.
Improved forecast for all Baltic
States
Nordea Markets improved the growth forecast for Lithuania this and next year from
0.4% and 0.2% to 0.9% and 3.2% respectively. In terms of the growth of the
Baltic States, Lithuania is
expected to continue treading the middle path, with Estonia in the lead this year and
in 2011 and 2012 with 1.8%, 4.2%, and 4.5% growth respectively. Latvia
will be in decline this and next year, but the rate of decline, according to
the analysts of Nordea Markets, will drop by 0.2% to 1.8%, followed by economic
growth of 3% in 2011 and 4.3% in 2012.
‘This year, the economy of the Baltic States is getting ready for a
jump-start, but we think that some factors indicate that the growth will not
gain the rate of the pre-crisis period since the economic foundation is still
very fragile,’ Ms Lindbladt said and added that the main risk for recovery is a
slowdown in exports.
Internal consumption, according to Nordea Markets, remains weak, but the
increasing indicators of consumer trust give hope for better times. The
analysts believe that better times may come next year, when internal consumption
is expected to make a contribution to the recovery of the economy. In Latvia,
consumer trust is expected to increase with the suspension of budget cuts since
such decisions may be expected due to new elections underway. ‘But the only
remedy that will assist the recovery of internal markets will be the reduction
of unemployment. In the medium term, this is one of the key objectives for all
three Baltic States. So far the unemployment
rate has been going down moderately’, Ms Lindbladt said.
This year the growth in the Baltic States will bring a positive change in
inflation: inflation will reach 1.2% in Lithuania
and 2.6% in Estonia.
Next year, it will go up in all three Baltic States and reach 3% in Estonia, 2.2% in Latvia,
and 2% in Lithuania.
Inflation will mostly be caused by the rise in the prices of raw materials this
year and by the slight recovery in internal markets next year.
State debt—problem of Latvia
and Lithuania
Nordea Markets notes stability in the financial markets of the Baltic States. Speculations regarding the devaluation of the
lat (LVL) in Latvia
are no longer expected (though the possibility of political instability still
exists because of parliamentary elections this October). The CDS of all three
countries also indicates a reduction in the market uncertainly.
‘The Baltic States should mostly focus on
public finance. This year the state debt in all three countries is growing and
each country has reasons to reduce the debt’, Ms Lindbladt noted. According to
the analyst, the Estonians are seeking to achieve their main goal of balancing the
budget. Latvians must ensure the continuation of the loan programme for the
country. Lithuania
must retain reasonable borrowing costs in international markets and this is not
possible without the stability of state finances.
The state budget deficit at the end of the first half of the year was about
8% in Lithuania, about 9% in Latvia, and a little under 2% in Estonia.
No new global recession predicted
In assessing the world economy, the analysts of Nordea Markets forecast a
certain drop next year, but they are sure that this is not a sign of a second
wave of the crisis. ‘It has been clear for some time that the US recovery, which was powerful at
the end of 2009, will slow down. But at the same time we can see that households
in the USA have managed to consolidate their finances over the past period and
in the near future will be able to contribute to the growth of economy’, the
global economy survey of Nordea Markets states.
‘Second, we do not need to worry about a slowdown in the BRIC (Brazil, Russia,
India, and China) economies. The direction of
the global economy has not changed and even though global production and trade
have reached the level that they were before the Lehman Brothers collapse, this
has been achieved not in the Western economies, but in the BRIC. The growth of China, India,
and Brazil
this year will be 9.8%, 9.1%, and 7.6% respectively’, the survey notes.
One of the best pieces of news in the global economy this year is that the euro
zone withstood and successfully overcame the crisis of public sector debts. The
consolidated package of the EU and the IMF (EUR 750 billion) was available due
to the stability of the euro zone countries, wheras the stress test that the
banks successfully passed reduced the fears in the financial markets.
The general situation is, however, called an ‘autumnal mood’ in the survey
of the global economy. The growth of the world economy should reach 4.1% this
year and will slow down to 3.5% next year. Nordea Markets views this as a
temporary difficulty characteristic of only to 2011 and 2012 and expects that
this will be followed by a return to the 4.1% mark.
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