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Eurozone’s growth recovers; perspectives are good in Baltic States as well

Dainis Gaspuitis/SEB.
Although global economic growth is expected to experience symptoms of anaemia, Eurozone’s GDP growth rate could reach 1.7% in 2016 and 1.8% in 2017. Perspectives for Latvia, Lithuania and Estonia are relatively good – growth will be dictated by private consumption and wage rise. However, it is starting to threaten competition, according to SEB Bank’s Nordic Outlook.

«One the one hand, private consumption will continue growing in Latvia; wages will grow as well. On the other hand, investments in business remain delayed, export volumes continue to decline and it is possible that we may see a repetition of last year’s scenario: weak first quarter followed up by higher activity in consecutive quarters,» – notes SEB Bank’s macroeconomic expert Dainis Gaspuitis.

GDP growth in Latvia is expected to be 2.7% this year and 3.5% next year. Lithuania’s and Estonia’s growth is expected to be 2.8% and 2%in 2016 and 3.2% and 2.4% in 2017.

It is concluded in the outlook that global economy has to take into account the coming of a long period of stagnation, which can be described with ultra-low interest rates and inflation. Especially in Europe, economies of many countries remain incapable of developing on their own and require support from the state and central banks. Dependence on political decisions of the market economy has only increased over the course of the past several decades.

Experts note – Eurozone is a monetary union with imbalanced growth and significant political problems. «Unlike the pre-crisis period, we can see clearly that residents’ and entrepreneurs’ desire to save up money is gradually increasing. The same can be said about their desire to invest. Only part of wage growth goes to consumption, the rest is used for savings,» – Gaspuitis adds.

Germany is subjected to increasing criticism from the International Monetary Fund, USA and other countries for its surplus of EUR 290 billion (8% of GDP) and too cautious economic policy. The banking sector, especially in south Europe, is under pressure from the high degree of debt of different companies, unsafe loans and low interest rates. This only delays growth. Populism is on a rise in countries, which only serves to increase tension. The same can be said about Brexit and the continuing debt crisis in Greece.

GDP growth in 35 OECT member states, including Latvia, will reach 1.9% in 2016, which is lower in comparison with 2015 (2.1%). GDP growth of 2017 is predicted to be 2.3%.

The policy of negative interest rates is becoming politically drawn. This is because it is interpreted as a secret tax on welfare – especially in countries with traditions to create savings and use deposit products. Oil prices and stock markets have partially recovered from last year’s decline. Central banks either remain more or less stimulating in their policy or plan to put off the normalization of their previously employed policy.

Concerns regarding the possibility of a rough landing scenario in China have also reduced slightly. Meanwhile, China continues demonstrating the ability to stimulate its economy and find ways of diverting accent from exports to internal consumption. Nevertheless, there is substantial surplus noted in production volumes, over-saturation of the housing market and high levels of debt. China’s GDP growth is expected to be 6.5% in 2016 and 6.3% in 2017.

Sweden’s GDP growth is expected to be only slightly slower. Public sector’s consumption, which has reached the highest level in the past 20 years, housing construction and export growth will keep GDP growth at 4% in 2016 (2,8% in 2017).

BNN 
25-05-2016
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