Baltic states to remain macroeconomic leaders among new EU members

RIGA - The Baltic states might remain the fastest growing economies among new EU members in the next two to three years, the World Bank announced in its quarterly EU survey on eight of the EU's 10 expansion states.

Andrejs Jakobsons, the World Bank's bureau representative in Latvia, told a press conference last week that gross domestic product in Estonia, Latvia and Lithuania - the poorest EU members on a GDP per capita basis - would continue to have higher growth rates than other member states, though the difference would diminish as other East European economies pick up the pace.
If average growth in EU-8 is forecasted at 4.7 percent this year, according to the World Bank, then in 2007 it will be 5.1 percent, while growth in the Baltic region will slow slightly. (See chart at bottom of page.)
Lithuania's economy is projected to remain the fastest growing among all eight countries for the four-year period surveyed (2004 - 2007), its GDP expanding 7 percent this year and 7.3 percent in 2005, though it is expected to slow in 2006 to 6.6 percent.

Inflationwise Lithuania is also leading the EU-8, with its consumer price index rise coming in at the bottom of the new EU member-group countries for the next three years. The World Bank has forecast Lithuanian inflation to be as low as 0.9 percent this year, with the next lowest level in Poland, at 1.7 percent.
This year's leaders for the highest inflation rises among the eight nations are Slovakia (8.1 percent), Hungary (6.5 percent) and Latvia (4.5 percent). In the latter, inflation "remains a concern," though it is expected to slow next year to 3.7 percent and then to 3 percent in 2006 - 2007.
Another good trend for the Baltics is their low level of public debt. Estonia by far has the lowest level compared to GDP - 5.4 percent this year - and this is expected to fall to 3.4 percent in 2007, a phenomenally small amount of debt for a sovereign nation. Latvia and Lithuania, by contrast, will have 16.2 percent and 22.4 percent public debt per GDP as of this year.
The Maastricht criteria does not permit national debt in excess of 60 percent of GDP.
Budget deficits, another key criteria, are also largely in check in the Baltics. Though Lithuania will have a deficit of 2.7 percent in 2004, it is expected to drop to as low as 1.5 percent in 2007. Latvia, by contrast, will keep its deficit in the 2 percent range, and Estonia will set itself apart in the EU-8 group by keeping its budget balanced.
Raita Karnite, director of Latvia's Economics Institute, said she would like to hear what the price of the strong macroeconomic stability pursued by Latvia would be, since at the present time it was to a great extent maintained at the cost of insufficient budget financing to certain sectors, such as health care and science.
As the World Bank writes in its report: "[Latvia's] fiscal deficit is expected to remain around 2 percent of GDP in 2004 - 2007. Revenues are overperforming, a supplementary budget is planned for the fall. It is unclear how these fiscal plans are consistent with the objective of balancing the budget over the medium term."