TALLINN - Swedbank has rehashed its 2009 economic forecast for the Baltics, releasing figures that suggest the effects of recession will be more severe than previously expected.
The estimates, released on Jan. 30, are a revision of Swedbank's Baltic Macro Outlook published last November. The bank now predicts that Estonia's economy will drop by 7 percent in 2009 's more than triple the bank's previous estimate of 2.3 percent.
Furthermore, the revisions see Lithuania's expected annual GDP plummeting from 0.5 percent growth to a 6 percent contraction. Latvia 's already pegged as a poor prospect when the previous forecast predicted a 4 percent decline 's is now expected to experience a 10 percent drop.
Swedbank, the leading lender in the Baltics, had previously grounded its Baltic economic forecast on the projected consequences of the global financial crisis. However, with a full-scale global economic recession now in place, the bank has cited diminishing demand 's both at home and abroad 's as the primary reason for the dramatically worsened outlook.
"Our expectations concerning economic developments in Estonia, Latvia and Lithuania have significantly deteriorated. For this year we forecast a considerable economic fall due to weakening domestic and external demand and even 2010 is not going to bring positive economic growth," said Swedbank analyst Maris Lauri.
At present Swedbank expects both Latvia and Lithuania to experience continued contraction in 2010, with their economies falling 2 and 3 percent respectively. On the other hand, Estonia's GDP is anticipated to claw back into positive figures in 2010, with an expected growth rate of 1 percent.
"Our forecast, which may look optimistic concerning 2010, is based on several important preconditions. First we expect that foreign direct investments will start growing from the second half of 2009, as the fall in the prices of assets will make them attractive to investors," Lauri said.
She also named transfers from various European Union funds and foreign financing via banks as factors of consideration.
The bank said the three countries have limited ability to influence the economic situation, and growing civil unrest 's as evidenced by the Riga and Vilnius riots 's threatens to derail attempts of stability.
"The governments' opportunities to help their economies are narrow and hence they have concentrated mostly on stabilizing the situation and then, if possible, helping businesses. Social tensions are increasing, and if political problems are not solved or get worse, the situation in the economies might turn extremely bad," the report said.
Moreover, Swedbank Baltic CEO Erkki Raasuke has expressed his concern that while governments may have limited avenues of action, those decided upon may prove crucial to economic survival. He said that the wrong course of action could result in bankruptcy.
"For the past two to three months I have had the feeling that the government does understand the situation adequately," Raasuke said.
"If Estonia can't undergo necessary cuts, we'll go bankrupt. There are examples to take and one should mainly look at Iceland. The problems are different, but it still should be terrifying enough to discipline us," he said.
Swedbank's report additionally forecast peak unemployment rates for the Baltic states 's Estonia peaking at 9.5 percent this year, Lithuania at 12 percent in 2010, and Latvia at 16 percent in 2010.
