Swedbank's Baltic Sea Report - "Region Shifts Into Lower Gear"
7 October 2008 Swedbank's recently released analysis of the economic conditions and structure of the countries around the Baltic Sea, describes the general slow down of the global economy and subsequent financial concerns for the Baltic Sea Region. The report also points out that the convergence in the Baltic Sea Region is progressing, but needs more effort.
The Swedbank Baltic Sea Report calls for further efforts to strengthen the business and investment climate throughtot the Baltic Sea Region.
In short, the Swedbank Baltic Sea Report contains the following elements:
• Swedbank expects the Baltic Sea economies to expand at a significantly slower rate in 2008-2009 than the last two years, with growth of around 3.5 - 4%. GDP growth is estimated at 2.2% this year and a modest 1.4% next year.
• The global economy has slowed and financial concerns have worsened. Though it doesn’t have any major economic imbalances, Germany has been infected by the rest of the world and now faces a weaker outlook for export and consumer spending. The Baltic Sea region’s largest economy will grow by only ½% next
year, but technically avoid a recession.
• The financial crisis is increasingly affecting the transition economies in the Baltic Sea Region. The financial sector is relatively small in relation to GDP, but when the credit expansion slows, growth does as well. Lower capital inflows through portfolio and direct investments are also affecting the real economy.
• In Russia and Ukraine, domestic demand is growing fairly strongly. Both countries are hurt by the financial crisis, and by political tensions domestically and internationally. At a time when commodity prices are falling, these countries can’t afford political instability. The importance of reform efforts is growing. Still, these countries have the best prospects in the region, with GDP growth of between 5% and 6.5% next year.
• Poland has increased its pace of reform since the election last year. More privatizations and a timetable for ERM II/EMU are part of the reason. GDP is expected to grow by 4.5% next year.
• Estonia and Latvia are headed backward, while Lithuania’s growth remains modest. Domestic demand is cooling off as households and businesses adjust their balance sheets. This is especially evident in the retail and construction sectors. Exports are being affected by weaker global growth as well. Reforms will
still need to be geared toward helping competitive sectors to grow in order to reduce imbalances and improve growth potential in the longer term. One positive effect of the slowdown is a lower risk of overheating, i.e., that current account deficits will shrink and wage growth will slow, resulting in lower inflation.
• Growth prospects are also weaker in the Nordic countries, especially Denmark. The forecast for Sweden has been revised downward since August, and GDP is now expected to grow by 1.5% this year and 1.2% next year.
• The convergence in the Baltic Sea region is progressing, but not without effort. Reforms are needed to strengthen the business and investment climate. This applies to every country in the Region!
Please download the report in full below.
