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Monday 24.09.2018 | Name days: Agris, Agrita

Nordea: Baltic States are doing too well for things to stay like this forever

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Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RU«Baltic States should not become arrogant because lack of labour force and low productivity level can delay future economic development unless investments in productivity are increased and structural reforms are performed,» Nordea economists say.

Experts told BNN that economies of three Baltic States have all entered a period of powerful development, which is improved by internal and external factors. External factors include stable growth of western economies and Russia’s economic recovery after the crisis.

Internally, stable wage growth and consumer tryst continue improving domestic consumption in spite of inflation. Inflow of EU funds stimulates available state investments, economists say.

«Another long-term risk comes from excessively beneficial monetary and fiscal policies. As a result, negative influence of domestic inflation may rise and create another real estate bubble. It is also expected that ECB will commence a strict monetary policy this year,» Nordea experts say.

Economists predict that asset purchase programme will likely conclude next year, which will be followed up by a moderate increase of rates in 2019. «We expect the main refinancing rate will remain below 0.25% at the end of 2019.»

Bank representatives predict that fiscal policy will remain beneficial in spite of the aforementioned economic growth.

«Baltic governments continue increasing social costs and raising minimal wage to reduce income inequality and consequences caused by the crisis. However, governments’ excessive expenditures will only increase negative influence from domestic inflation. Because these countries already have the highest inflations and wage rise in Eurozone, unchecked price rise spiral may reduce competition on an international scale and create lasting influence on economic development,» economists say.

Considering the aforementioned conditions, experts remain cautious in relation to Baltic States’ economic development chances. They expect growth may decline to 2-3% with short cyclic increases in 2017 and 2018.

Lithuania expected to have quick and balanced growth

«Lithuania’s economic growth is becoming faster and more balanced after slow consumption-based growth in the past two years. Exports are on a rise, thanks to growing demand in western countries and continuing ICT development, as well as development of exports of other business services. Domestic consumption continues growing in spite of growing inflation,» says Nordea chief economic expert in Baltic States Žygimantas Mauricas.

Experts expect Lithuania’s economic growth rate will reach 3.8% in 2017. «Nevertheless, we expect caution when it comes to long-term development chances, especially considering countless structural problems and lack of political will to realize necessary reforms,» Mauricas continues.

Latvia: even turkeys can fly in strong wind

Nordea Bank economist in Latvia Gints Belevics says Latvia’s growth turned out surprisingly positive this year. «Thanks to a positive external environment, the country’s GDP is expected to rise to 4% this year. A similar growth rate will continue in 2018. Export, EU funding and government expenditures will be the main driving forces behind growth. To maintain good growth indexes in a long-term perspective, however, not much can be done without major reforms.»

According to the expert, it is critically important to improve investments and secure higher involvement of residents on the labour market. The latter is especially true for youngsters.

Estonia: full force forward! Consumers can breathe in deep

Nordea Bank’s chief economist in Estonia Tõnu Palm says strong and wide recovery has commenced with a focus on experts and investments, which is improved thanks to demand from abroad and positive investments in infrastructure.


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