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Wednesday 24.01.2018 | Name days: Krišs, Eglons, Ksenija

SEB outlook: Russia close to stagnation; Baltic vulnerability increases

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Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RUThe gradual economic recovery in most of Eastern and Central Europe continues. The process goes on in spite of reducing growth perspectives in Russia and Ukraine and the growing tension between the two, as concluded in the latest SEB Eastern European Outlook.

According to the bank’s experts, direct trade among with directly involved in the conflict, aside from Baltic States, is minimal. Further economic development perspectives in Germany and elsewhere in Western Europe will partially compensate export losses caused by weak demand in Russia. There are also plenty of conditions to improve private consumption. However, growth perspectives of Eastern European countries for 2014-2015 have been reduced, because geopolitical instability in some of the countries there has increased short-term risks.

It should also be said that SEB outlook is based on the assumption that the conflict between Russia and Ukraine does not develop into a full-scale military conflict, and trade sanctions do not impact energy resource supply from Russia to Europe.

SEB Banka economist Dainis Gašpuitis notes that the majority of Eastern European countries, except for Russia and Ukraine, started showing signs of recovery in 2013. Recovery process progresses most convincingly in the central region, which mostly benefits from economic growth in Germany and the stabilization of Eurozone’s economy and banking system. Recovery will continue in the future as well. Short-term export will remain the main engine even though Russia’s economic difficulties will reduce progress.

Low interest rate and reduction of strict fiscal policies will only contribute to. Private consumption will be improved by growing wages, which can be explained with low inflation. It is expected that oil prices will reduce slightly. Capital expenses will become active, but not immediately, because industrial output remains moderate and loan conditions remain relatively strict.

Investment plans are likely to be impacted by geopolitical tension.

Estonia’s export-dependent economy will be impacted by slower economic growth in Russia and weak economic development in Finland. Recovery is expected to come in 2015. GDP will grow by 0.5% in 2014 and 2.5% in 2015.

Latvia’s economic impulse is expected to become weaker. It will remain generally positive in the region. Under effect from the Ukrainian conflict, export, tourism and transit sectors may experience development that is slower than usual. The conflict may also impact the activity of the investment sector. A strong increase of actual income will increase support to households’ consumption. Unemployment will continue to reduce. It is expected that the country’s GDP will grow 2.9% in 2014 and 3.4% in 2015.

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