RIGA - UniCredit, which operates thelargest banking network in Central and Eastern Europe (CEE), is thelatest source of thought-provoking predictions about the state of the Balticeconomies in general and the Latvian economy in particular.
In a briefing note issued July 22nd,Unicredit's Debora Revolta said: "This international environment isclearly testing the economies in Central and Eastern Europe, thoughso far the region appears to be resilient."
UniCredit forecasts an average annualgrowth rate of 5.1% for the Baltics from 2008-2010, which seemsfairly healthy.
However, that figure could bethreatened if the Baltics fail to tackle an over-reliance onfinancing domestic growth using external sources of funds. "It isquite clear that due to the international environment vulnerabilitiesin the CEE region exist. In particular financing domestic growth withinternational savings has now become an issue", says Revoltella,adding that the Baltics are among those countries "that most needto finance their current accounts."
The economic outlook inthe Baltic countries has clearly deteriorated since the beginning of2008, the UniCredit document says, arising from rising macroeconomicimbalances, tightening credit conditions and overheated real estatemarkets.
"Especially in Estonia and Latvia theslowdown seems to be proceeding faster than previously expected, withan estimated GDP growth for 2008 of 0.1 % in Estonia and 2.0 % inLatvia. Lithuania's economy appears to be more resilient at themoment, with an expected GDP growth for 2008 of 4.7 %," thestatement says.
The bursting of the property price bubble isalso identified as a worry, particularly in Latvia, given the factthat the development of the real estate market observed in recentyears was less smooth than in the other two Baltic states. Forexample, in Riga apartment prices have fallen by a quarter in thefirst six months of the year. Signs of stagnation in the housingmarket have also increased in Estonia, after property sales fell by30 % in the second quarter.
