Baltic Outlook: the economy freezing up - nu jau prognoze par atkopšanos pārceļas uz 2010...
Estonian
economy in recession for 2008—2009, hopes for 2010. Misbalances — CAD,
inflation, debt burden — retreat. Hopes for euro if budget deficit will
not increase too much. Latvian economy is in a deep recession,
unemployment will rise. External imbalances and inflation are shrinking
rapidly. Exports expected to be the best performing part of the economy
throughout the cycle. Lithuania’s economic growth will stall during
2009—2010. Drivers of domestic demand are already exhausted. Inflation
remains on high level, but on downturn. These prognoses are made in the
newest Baltic Outlook, prepared by Hansabank Markets.
The global economy is heading towards a recession. However,
it is not yet clear how deep it will be and how long it will last, as
it is not clear whether the coordinated action of global economic
powers will have a lasting effect on markets or not. In addition, we do
not know what the consequences of the recent troubles are. Hence it is
quite difficult to formulate a forecast now for every country. It might
easily happen that current expectations prove to be too optimistic, and
that global economic developments may turn out to be worse than
currently expected, write the authors of the Baltic Outlook.
Revisions have been made of forecast for the Baltic
economies, taking into account the changes in the global economy and in
the Baltic countries themselves (data revisions, policy changes etc).
The Baltic economies were heading towards recession without the recent
troubles in the global financial market, and the worsened economic
situation and outlook in the financial world have made our forecast
significantly gloomier, as all three countries are subject to global
economic developments. It would be very difficult to show improving
growth rates in the Baltic economies at a time where the global economy
and particularly their main trading partners are in a recession;
however, whether recovery will come at the same time as in partner
countries and how strong it will be depends on the local economies.
The authors of the Baltic Outlook have cut growth
expectations for the Baltic countries and expect negative GDP growth in
Estonia and Latvia in 2008 (the countries have already entered formal
recession as they had two consecutive quarters of negative quarterly
growth), while Lithuania will still note positive annual growth figures
in 2009 (though well below previous expectations). The year 2009 is
expected to be the most difficult for all three countries: the experts
forecast a fall of around 2 % in Estonia, 4 % in Latvia and only minor
growth in Lithuania. 2010 should bring slow recovery in Estonia and
Latvia, with 2 % and 1 % growth respectively, but the Lithuanian
economy is about to suffer from the closure of the Ignalina nuclear
power station and followed that sharp increase in electricity prices.
The economic situation in Latvia
Latvia has
started official talks with the European Commission and the IMF about
funding to stabilise the economy, according to the Latvian Prime
Minister Ivars Godmanis.
“The main reason for the need of help from the EU and the
IMF is the recession and financial crisis aggravating public finances”,
says Cecilia Hermansson, Chief Economist at Swedbank. The loss in
revenues due to the weaker demand, as well as the increased spending
due to the takeover of Parex Bank, the second largest bank in the
country, may cause the budget deficit to increase.
Latvia’s economy shrank 4.2 % in the third quarter,
according to preliminary figures. The large current account gap is
decreasing as a result of weaker domestic demand, and stood at about 12
% of GDP in the third quarter.
“We expect that Latvia’s economy will continue to shrink
during next year, and possibly also in 2010, — says Dainis Stikuts,
Senior Economist at Swedbank in Riga, and co-writer of the Baltic
Outlook. — At the same time internal and external imbalances will
gradually improve. In the meantime, the economy needs support to
maintain stability.”
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