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Growth is back in Baltics, Poland and Russia

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Issue date: 
November 1, 2010
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After some tough years, the economic crisis is over for the Baltic states, Poland and Russia,  at least in terms of growth, according to Nordea´s Baltic Rim Outlook. Estonia's forthcoming accession of the euro underlines that a new era has begun for the Baltics. Exports have initially been the main driver of the recovery, while growth in domestic economies varies considerably. Poland leads clearly and Russia is accelerating, while the Baltic countries are still struggling to boost domestic demand.

In Estonia,  mainly the exports has driven the recovery. Although an improved situation at the labor market, consumption is still fragile. The introduction of the euro is expected to inject new confidence in the economy, both at home and abroad, and provide additional strength in the recovery. Estonia has a good track of their public finances, but has other challenges to tackle: inflation is rising, and long-term unemployment is high.

In Latvia, the public finances is in focus. The budget deficit in 2011 will be down to under 6 percent of GDP, a challenge given that the 2009 deficit to 10.2 percent. But the economy already shown clear signs of a gradual recovery, although the domestic economy still shows few signs of an upturn. The results of the last election was welcomed by the market, but credibility must be maintained to secure favorable terms on local financial markets.

Lithuania's GDP are far from the levels before the crisis. Although a recovery in domestic demand is needed to recover loss. This year's growth will likely moderate right, but it is expected to pick 2011th. However, a slowdown in exports means that the economy will be weak for some time. 

In Russia, growth slowed in the second half, suggesting that it will be lower than previously forecast for full year 2010. In particular, agriculture has stagnated, as a result of this summer's severe drought. Although inflation has accelerated, we believe that it remains in double digits over the forecast period. The budget deficit will remain substantial, despite factors such as rising oil prices and privatization plans

The Polish economy picks up more speed and it is now in full swing. Nordea expects that momentum starts to slow down towards the end of this year and the first half of next year. Right now, the fiscal policy as the main concern, especially given that next year is an election year. Currently, the central bank in sharp focus, because the first rate hike draws near.


Extpub | by Dr. Radut