Estonia is the least problematic Baltic country in terms of economic fundamentals. Even though it experienced an economic downturn last year after the Russian financial crisis and its domestic demand is still weakish, it has picked up healthy growth already. This year's GDP growth is expected to be 5.6 percent. The main growth drivers are exports to the EU, industrial production growth of about 10 percent year on year and relatively healthy domestic demand compared with the other Baltic countries.
Last year inflation fell to 3.3 percent due to low euro area inflation rates, the impact of the Russian crisis especially on agricultural prices and cyclical factors. This year it is expected to be higher due to the reversal of the above negative factors.
Given stronger exports and somewhat subdued private consumption, a current account deficit below 7 percent of GDP is expected this year.
Latvia: growing strong while the IMF worries about the budget deficit
Latvia is going through an economic upturn with almost all sectors contributing to the expected 4.2 percent GDP growth this year in an environment of low inflation. The budget deficit, expected at around 3 percent this year, will exceed the 2 percent maximum agreed with the IMF.
The most important GDP growth drivers are the services sector and transit trade. Export growth is more moderate than in Estonia because the SDR peg has kept the lat stronger versus the euro. This year exports have been growing at an average speed of around 13 percent year on year, including growth in exports to the EU area at some 17 percent year on year. Unemployment, which is expected to be at 8.8 percent this year, is lower than in the other Baltic states.
The current account deficit is expected to narrow to almost 8 percent of GDP. There is also potential for a pick-up in foreign direct investment as the economy has turned into a growth cycle. Despite the continued appreciation of the real effective exchange rate vis-a-vis EU trading partners. Other indicators, including the robust export performance and a slowdown in wage growth, indicate an improved competitiveness margin. The private sector development has got a boost lately, too, given the above factors and the continued progress in structural reforms, which are largely aimed at EU accession.
Lithuania: slowly moving through the bottom of the cycle
This year's GDP growth is likely to be around 1.5 percent, driven by exports, while domestic demand remains weak. The economy is likely to recover at a healthy 4-5 percent growth rate not earlier than in 2002. The government's approved national budget for the year 2001 is based on a pessimistic economic scenario. According to this scenario, GDP will increase by 1.3 percent and 2.5 percent in 2000 and 2001, respectively, while average inflation rates are seen at 1 percent and 1.6 percent. The level of unemployment is expected to fall to 10.6 percent in 2001 from 11.2 percent in 2000.
The main growth drivers this year are exports to the EU and Russia while the domestic demand will remain constrained by a very weak fiscal situation, a low investments rate and high unemployment.
Successful restructuring and privatization will be important for future foreign capital inflow. The following companies are still on the sales list: Agricultural Bank, Savings Bank, Lithuanian Gas, Lithuanian Energy and Lithuanian Shipping Company. For these, the government expects to receive over $350 million over the coming years. Additionally, Lithuania might receive DEM 1 billion ($460 million) from foreign investment in coming years if the government accepts the recent Lufthansa bid to turn a former military airport in Siauliai into a cargo hub. Lufthansa would like to receive a 99-year lease in exchange for the investment, which means that this will also be a political decision for the government.
Source: Economic and financial outlook. MeritaNordbanken/Unibank Markets
Please enter your username and password.
2025 © The Baltic Times /Cookies Policy Privacy Policy
