Nordea sees Baltic Rim recovery

Published: June 8, 2010

Economies are “fairly isolated” from sovereign debt fallout.

Analysts at Nordea see a cautious upturn in the Baltic Rim economies of Estonia, Latvia, Lithuania, Poland and Russia, noting that their public finances have left them fairly isolated from the sovereign debt crisis in the European Monetary Union.

In a new research note, the firm’s analysts point out that Estonia’s recovery hopes have been strengthened by the increasing likelihood of euro adoption early next year, adding that the main challenge for the government will be to reduce unemployment and support consumption.

The Latvian economy, meanwhile, is stabilising and, like Estonia, will rely on the export sector. Political instability, however, is causing some uncertainty, the analysts write, and this is likely to intensify ahead of parliamentary elections in October.

In Lithuania, the main GDP components, other than private consumption and inventories, continued to decline during the first quarter of this year. Nordea expects “only lacklustre growth” this year.

The team expect Russia’s growth to pick up later this year, with exports leading the recovery. Subdued activity in credit markets remain a risk to growth, they add, as does capacity constraints in the energy sector.

Finally, in Poland “the recovery is on track”, Nordea’s analysts write. “We are seeing more signs of a stabilising labour market and expect the unemployment rate to peak this year. That could bring new growth drivers such as investment, credits and the housing market out of their global financial crisis hideout.”