U.S. slowdown will hit Baltic economies, say analysts

  • 2001-04-19
  • Nick Coleman
RIGA - The management consulting firm PricewaterhouseCoopers is predicting lower-than-expected economic growth in the Baltic states this year, as a result of the downturn in the United States.

In its quarterly Economic Review, published on April 10, PricewaterhouseCoopers predicts growth in 2001 will be between 3 percent and 6 percent in the Baltic states, rather than its earlier prediction of between 5 percent and 7 percent. Speaking to The Baltic Times, the report's author, Hardo Pajula, said: "The risks have increased significantly in the last quarter. A downturn would affect us and everyone else."

The bulk of the Baltic states' exports are to the European Union, not the United States, Pajula pointed out. Rather than hitting exports, a slump would first affect investment, for which the Baltics are more reliant on the United States.

"If sentiment toward transitional economies changes the Baltic states would be hit by higher interest rates," he said. "There may even be speculation on the currencies. Concerning trade, a significant part of textile exports from Estonia's Narva region are to the United States, and Narva is already an (economically depressed) area. But in general direct trade is not so important. Exports will be affected indirectly, via Europe and Scandinavia, but the situation on the financial market is more important."

That Estonia's economy has grown more than Latvia's or Lithuania's is due to a "decisive shift" toward trade with Finland and Sweden, says the Economic Review. In this Estonia has a "clear lead" over Latvia and Lithuania, it says.

Estonia's decision to peg its currency to the euro in 1999 has also boosted exports, Pajula added. The change has resulted in cheaper exports to countries outside the European Union, particularly Russia, he said. Given that Lithuania's currency, the litas, is still pegged to the high-value dollar, its GDP growth (3.3 percent in 2000, according to Lithuania's Ministry of Economics) is remarkable, he said.

Commenting on Estonia's high unemployment rate (12.1 percent in the fourth quarter of 2000), Andras Klaar, economic adviser to Estonian Prime Minister Mart Laar said the government was working to improve the situation.

"A variety of projects has been implemented to help people find new job opportunities, such as projects funded by the EU's PHARE program," he said. "People in Narva are quite highly educated so I hope our policies will bring down unemployment soon."

Meelis Virkebau, president of the Narva-based Greenholm Group, which exports 20 percent of its textile products to the United States, says he and the company's 4,900 employees will not be hit by problems in America.

Innovation is the key to survival, he believes.

"These problems are of no concern to us; they're affecting companies producing for the mass market. We produce specific, unique products, such as home-furnishing fabrics, to our own designs, and we have long-term relationships with our customers. We are constantly innovating," he said.