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Wednesday 24.01.2018 | Name days: Krišs, Eglons, Ksenija

SEB: Ukraine faces acute economic crisis and is nearly out of reserves

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Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RUBaltic and Central European countries continue demonstrating good resistance toward the Russian-Ukrainian conflict, Russian sanctions on imports of food products and the growing recession.

This situation is mostly maintained by favourable economic factors, including rapid growth of actual income of households, especially in Baltic States. In a long-term perspective, increasing rates of economic growth in Germany will provide additional assistance to the region.

Nevertheless, the general growth rate will be modest, as export volumes to Russia will decrease and investment growth will grow slowly in light of geopolitical tension. Like in the rest of Europe, inflation will remain very low in Baltic States and Central European countries. This is likely because of prices on energy resources. Inflation in Estonia will recover relatively quickly, as the country is affected by the tense situation on the country’s labour market and emigration, which may lead to labour force deficit and rapid wage rise. All three Baltic State will continue having problems with emigration and demographics.

Everything points to long-lasting effects of the Russian-Ukrainian conflict. This is why it is hard to predict the development of sanctions, as views on sanctions against Russia are beginning to divide in Europe. At the same time, Russia is expected to experience a deep recession following the decline of oil prices, inflation and sanctions. Financial reserves of the current government will allow a partial amortization of financial problems in the country. Russia’s GDP will decline by 5% in 2015 and 1% in 2016. Increase of oil prices may help stabilize Russia’s economy. Rouble is vulnerable, but it will gradually recover.

Ukraine is currently on the threshold of a steep economic crisis. The country has nearly emptied its central bank’s reserves. The recently approved decision to expand the programme of international assistance and partial write-off of the country’s debts will help the country avoid failure to comply with financial commitments. Ukraine’s GDP will decline by 6% in 2015.

Latvia’s economic growth will be on last year’s level – 2.4%. Next year’s estimate suggests economic growth of 2.7%. Private consumption will be the foundation of economic growth. Private consumption is expected to rise following an increase of actual wages. Exports will balance on the level set in 2015. Success, however, will depend on the ability of many entrepreneurs to find alternatives to the Russian market. Investments will grow slowly, which can be explained with the ruling uncertainty in the region and accessibility of EU funds.

Lithuania’s economic growth is expected to be at 2.6% next year. That of 2016 is expected to be at 3.5%. Estonia’s economic growth will reach 2.2% this year and 2.7% next year. Poland will demonstrate stable GDP growth of 3.4% in 2015 and 3.6% in 2016.

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