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Friday 23.02.2018 | Name days: Haralds, Almants
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SEB: Latvia's economic growth to increase to 3.8% in 2013

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Dainis Daspuitis

Economic growth in Eastern Europe, including Central Europe, has reached its lowest point in the last three to six months. Similarly to Western Europe, the situation in the north of Eastern Europe is better than that of its southern part.

The Baltic States, Russia and Poland will continue to show a notable GDP increase in the next two years. Ukraine will remain in stagnation. The recovery of countries of Central and Southern Europe region will be very slow. Croatia and Slovenia will continue to show a decline, as concluded in the SEB Eastern economic outlook.

“The northern part of Eastern Europe is displaying relatively good resilience to the global slowdown and the euro zone debt crisis, mainly since their economies and banking sectors are in relatively good fundamental shape and because Russia is benefiting from continued high oil prices of around USD 110/barrel. Countries in the southern part of the region have larger internal imbalances and their banks are squeezed more by the problems in Western Europe,” – SEB macroeconomic expert Dainis Gaspuitis explained.

“Unemployment is gradually falling in the Baltics and Russia but will rise in Poland this year and remain high in Ukraine. Large emigration from the Baltics in recent years is causing some bottleneck problems in their labour markets. Although pay increases are generally speeding up, the cost situation is under control with the possible exception of Estonia. Export competitiveness thus remains good, after earlier internal devaluations. In Russia, the jobless rate has already dropped below its equilibrium level, generating cost pressures and growth problems generally. This year, inflation will continue to fall in the Baltics and Poland but rise somewhat in Russia and rebound clearly in Ukraine, despite its economic crisis,” – the economist comments.

According to him, inflation continues to reduce in the Baltics and Poland, while that in Russia grows slightly. The price rise in Ukraine is expected to increase even more, even in spite of the problems in the economy.

“Latvia will convert to the euro in 2014 as planned. The country meets all Maastricht criteria by a wide margin. But no wave of new euro zone memberships by the EU countries in Eastern Europe can be expected; for most of them, accession will be delayed for some years. The main reason is that, except for Lithuania, their governments have made adopting the common currency a lower priority due to the euro zone crisis,” – Gaspuitis says.

Looking at this year’s economic growth potential, Latvia and Lithuania are expected to have a smaller economic growth than the one they experienced in 2012. Nevertheless, Latvia remains among the most rapidly growing economies in the European Union. This year’s economic growth, compared to last year’s 5.6%, will increase to 3.8%. Economic growth of 2014 is expected to return to the level of 5%.

Lithuania’s GDP, after last year’s 3.6% increase, will drop to 3.2%. Next year’s economic growth is estimated at 3.5%.

Estonia’s economic growth was 3.2% in 2012. It is expected that GDP will increase by 3.8% this year and by 3.7% in 2014. Economic growth rates of the Baltics remain below their potential, which is approximately 5%. Economic growth will be balanced nonetheless.

Russia’s economic growth, however, will drop to 3% this year and grow to 3.5% next year. In order for the economy to achieve its potential – 5-6% – it is necessary to carry out a more decisive approach to structural reforms.

During the last six months, Poland managed to recover from its steep drop in economic activity. Meanwhile, the central bank has concluded its interest rate reduction policy. This year’s GDP growth will remain on the level of 2012 – 2.1%. Economic growth will become more rapid in 2014 – 3.5%.

Stagnation will remain in Ukraine in 2013, but the country will, however, return to economic growth in 2014 – to 1.8%. The economy will still need to face a large current account deficit and low trust. The economy needs a new loan from the International Monetary Fund.

Ref: 102.109.109.6784


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