RIGA - UniCredit, which operates the
largest banking network in Central and Eastern Europe (CEE), is the
latest source of thought-provoking predictions about the state of the Baltic
economies in general and the Latvian economy in particular.
In a briefing note issued July 22nd,
Unicredit's Debora Revolta said: "This international environment is
clearly testing the economies in Central and Eastern Europe, though
so far the region appears to be resilient."
UniCredit forecasts an average annual
growth rate of 5.1% for the Baltics from 2008-2010, which seems
fairly healthy.
However, that figure could be
threatened if the Baltics fail to tackle an over-reliance on
financing domestic growth using external sources of funds. "It is
quite clear that due to the international environment vulnerabilities
in the CEE region exist. In particular financing domestic growth with
international savings has now become an issue", says Revoltella,
adding that the Baltics are among those countries "that most need
to finance their current accounts."
The economic outlook in
the Baltic countries has clearly deteriorated since the beginning of
2008, the UniCredit document says, arising from rising macroeconomic
imbalances, tightening credit conditions and overheated real estate
markets.
"Especially in Estonia and Latvia the
slowdown seems to be proceeding faster than previously expected, with
an estimated GDP growth for 2008 of 0.1 % in Estonia and 2.0 % in
Latvia. Lithuania's economy appears to be more resilient at the
moment, with an expected GDP growth for 2008 of 4.7 %," the
statement says.
The bursting of the property price bubble is
also identified as a worry, particularly in Latvia, given the fact
that the development of the real estate market observed in recent
years was less smooth than in the other two Baltic states. For
example, in Riga apartment prices have fallen by a quarter in the
first six months of the year. Signs of stagnation in the housing
market have also increased in Estonia, after property sales fell by
30 % in the second quarter.
