RIGA - The economies of Estonia, Latvia and Lithuania are recovering from the European Union’s deepest recessions faster than previously estimated as manufacturing picks up and the financial industry improves, says Capital Economics, reports LETA-Bloomberg. Estonian GDP will probably rise three percent this year, compared with a previous estimate for a one percent contraction, writes the London-based group in an e-mailed note on Aug. 12.
Lithuania’s economy will register zero growth, compared with a two percent contraction forecast earlier, while Latvian GDP will fall 0.5 percent, rather than 3.5 percent.
The Baltic economies returned to growth in the second quarter from the previous three months, beating economists’ estimates. Exports and industrial output expanded as global trade improved and wage cuts helped increase competitiveness.
“We clearly underestimated the pace of the recovery, particularly in industry,” said David Oxley, an emerging markets economist at Capital. “Despite raising our GDP growth forecasts for the Baltic States, we remain a lot less optimistic than the consensus about growth prospects in 2011 and 2012.”
Next year, all three Baltic states will expand three percent, Capital said.
Estonia, which will adopt the euro in January, expanded an annual 3.5 percent in the second quarter, the second-fastest pace in the EU behind Sweden. Lithuanian output grew 1.1 percent from a year earlier in the April-June period, and Latvia’s annual decline slowed to three percent from six percent.
Latvian economic output grew a quarterly 0.1 percent in the second quarter from the previous three months. Oxley estimates quarterly growth was closer to two percent and will be revised up later.
The EU and the International Monetary Fund estimate Latvia’s economy will contract 3.5 percent this year, which will mean that the country will have to implement fewer austerity measures in the 2011 budget.
Eurostat numbers show that Latvia’s gross domestic product fell 3.9 percent in the second quarter of the year, compared with the second quarter of 2009. This was the largest decrease among all the European Union member states. Latvia had also registered the steepest GDP decrease in the first quarter of this year, and for the third and fourth quarters of last year.
In the second quarter of the year, as compared with the same year-earlier period, only four EU countries registered a drop in GDP - Bulgaria’s GDP contracted 1.5 percent, Greece registered a 3.5 percent GDP reduction, Spain was down by 0.2 percent, and Cyprus was also down by 0.2 percent. The entire EU’s GDP increased 1.7 percent, including a 1.7 percent rise in the eurozone.
Compared to the first quarter of this year, GDP increased by 1.0 percent in both the eurozone and the EU in the second quarter.