OSLO -- Baltic consumers are catching up with the rest of the world in terms of their spending power, according to a new report.
Labourmarket improvements have substantially increased the average purchasingpower of consumers in the Baltic Rim region and created newopportunities for Nordic companies. It is no longer just a question ofthe huge potential future demand. Consumer spending is indeed expandingrapidly and has become the primary growth engine in all the countries. That is one of the conclusions presented by Nordea's economists in their semi-annual publication Baltic Rim Outlook. The Baltic Rim consists of Russia, Poland, Latvia, Estonia and Lithuania. Labour market developments in theBaltic Rim economies are spectacular, the report says. In many ways they resembledevelopments in the Nordic labour markets, only much more extreme. Wages are growing by more than 30 per cent in Latvia, 6 millionnew jobs have been created in Russia since 2000 and the unemploymentrate has fallen 7 percentage points in Poland since the EU accession in2004. Among the Baltic countriesEstonia leads the way in the correction to more sustainable growthrates.
"We are comfortable with our view that overheating risks arehistory even if inflation continues to rise before the trend reverses,"says Mika Erkkila, Senior Analyst, who is Nordea's expert on economicdevelopments in the Baltic countries and Russia.
Real estate prices arealso reaching their turning point. In contrast, the growth rate inLatvia is still far too high for policymakers to feel comfortable, the report suggests.
Thered-hot pace in bank lending is slowing, but the very large currentaccount deficit has only stabilised, at best. Although real estateprices have fallen since the spring, calling this trend a broadslowdown would be premature according to Nordea.
Lithuania can gain some solace from the conclusion that it has not developed a seriousoverheating problem - at least not yet.
Nordea's report comes less than a week after another piece of research by GfK offered similar conclusions.