Nordea: Baltics should not expect a «walk in the park»

The austerity policy realized in Baltics during the crisis has resulted in some of the lowest budget deficit and debt levels in the European Union. However, Baltics are part of the six EU member states, which includes Luxembourg, Denmark and Slovakia, that are able to fulfil all Maastricht criteria.

«Baltic States have managed to demonstrate considerable improvements in competitiveness, which is demonstrated by high positions in Global Competitiveness, Ease of Doing Business and Economic Freedom indexes. In general, Baltics are now more prepared to overcome any internal or external shocks than they were in the pre-crisis period – 2005-2008,» – explains Nordea senior economic expert Žygimantas Mauricas.

«Is spite of that, GDP outlooks are below potential growth, which can be explained with general uncertainty. Because of that, Baltic economies should not expect things to turn out like a walk in the park,» – he warns.

GDP growth-wise all three Baltic States are below the average Eurozone index in Q3 2016. Baltic Economists explain: «Low economic growth will require more active work and more targeted policy to limit the negative effect for long-term economic growth, increase competitiveness and secure unhindered economic convergence. In the past decade, Baltics have come close to the average EU level: from 54% in 2005 to 72% in 2015.»

«Baltic economies do not have macro-economic imbalance; they are well-positioned for stable and sustainable growth. But there are obstacles in the way – secondary influence from Russia’s economic crisis, shocks in China’s financial markets and Brexit. These problems do not allow us to use the full growth potential. If this continues, obstacles could impeded lasting convergence with western nations and put at risk the creation of strong economies,» – explains Mauricas.

Nordea economics expert Gints Belevics admits that inflation will come back in 2017. Nominal wage growth will slow down to 4%, and inflation rate will reach 2-3%. This means, residents’ actual purchasing power may grow by a mere 1-2%.

«Consumer price growth is predicted to be within 0% in 2016 to 2.4% in 2017 and 3.0% in 2018. Investments have mainly declined because of dropping activity in the construction sector. Investments in transport equipment shows a recovery after the decline in 2014 and 2015, which was largely impacted by the crisis in Russia,» – said Belevics.

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