RIGA - With the summer sun beating down and the beaches beginning to teem, it is difficult to feel pessimistic about anything these days 's global warming, the clash of civilizations, or, say, the Baltic economies. And perhaps it is best that way.
Nevertheless, it is worthwhile mentioning that in about four months, when the days become shorter and the leaves begin falling from the lindens and chestnuts, Baltic residents are in for a long, cold winter. Make that "shower."
After four years of record-smashing growth 's coinciding with the accession to the European Union 's and accruing a number of frightening imbalances, the economies of Estonia, Latvia and Lithuania are poised to settle down for a long sleep.
Analysts, both regional and international, agree that the much-anticipated slowdown is taking place, but they disagree as to what its intensity and length will be. But as more fresh data streams out of the statistics departments, there are more people predicting a worst-case scenario.
In Latvia, the latest convert to pessimism is economist Uldis Osis.
"I am afraid that the slowdown of development might approach zero or even be negative," he told Latvian television on May 30. "If we get to negative growth, then it will not be easy to recover, and it might continue for two or three years," he added.
Currently the lowest forecast on record is from the International Monetary Fund, which has predicted that Latvia will post GDP growth of less than 1 percent this year and next.
This forecast has aggravated many Latvian policy makers, including the prime minister and president of the Bank of Latvia. Irena Krumane, the new chief of the financial markets commission, was quoted as saying that "such a rapid deterioration is not possible."
By contrast, private sector analysts have predicted that the economy would grow approximately 5 percent this year, which is considerably higher than international forecasts and would seem wishful thinking judging by data on economic activity over the first four months of the year.
Industrial output in Latvia fell 3.1 percent in the first quarter year-on-year. In March it dropped 5.5 percent compared to the same month last year. Manufacturing currently comprises only 10 percent of Latvia's GDP, while one economist has said it should be 13 percent.
In Estonia, GDP grew 0.4 percent year-on-year in the first quarter, according to a flash estimate, the lowest level in eight years. Given that Latvia's imbalances were greater than Estonia's, the result does not bode well for what has been the EU's fastest growing economy over the past three years.
Analysts say that the downturn is a welcomed development that will give the economies the opportunity to balance out the worst indicators: inflation, current account deficit, wage growth and property bubbles.
Marcus Svedberg, chief economist at East Capital, a Stockholm-based asset manager with some 4.4 billion euros under management, said that for years the Baltic economies grew faster than their potential.
"So now [the economies] are correcting and will go below potential for a number of years," he told The Baltic Times.
"The correction is exacerbated by the global economy," he added. "It will be harder than if it would have happened at a different time."
Whether this inevitable sleep turns out to be a brief nap, a hibernation or a lengthy coma, depends largely upon policy makers.
"There should be an expansionary policy," said Aigars Stokenbergs, a Latvian MP and a former economy minister, "which means giving more money to people in order to raise sales of small and medium business."
Stokenbergs, who was an economic adviser to former Prime Minister Aigars Kalvitis, said the government needed to adopt a range of measures 's support for small and medium enterprises, reducing taxes, slashing government waste 's so that the economy would start growing by the end of 2008.
As Stokenbergs explained, the external conditions for Estonia and Latvia are identical. "It is a way government can intervene in an economy 's by working more efficiently," he told The Baltic Times.
Estonia's government moved quickly to slash expenditures as soon as it became clear that there was a revenue shortfall. In Latvia, the government has needlessly spent some 100 million lats (142 million euros) in the first four months, said Stokenbergs.
Lithuania, meanwhile, is charting its own course 's GDP grew 6.9 percent in the first quarter 's though analysts agree that since rapid growth started later there it will simply reverse course later.
In the long term, however, it appears Lithuania will suffer an enormous blow when it shuts down its nuclear reactor in December 2009 and become an energy importer rather than a net exporter, analysts agree. Potentially this could prolong Lithuania's own inevitable downturn.
