08 Oct 2008 10:00

Eastern European Outlook: Resilience is eroding - lengthy recession in Estonia and Latvia

"Because of intensified global financial stress, the global economic outlook has become even gloomier just in the past month. This will have unavoidable consequences for Central and Eastern Europe as well, especially since the financial crisis has also reached Western Europe in earnest. In our new scenario, Central and Eastern Europe can no longer be viewed as a strong growth region, even though many countries are of course showing good growth compared to Western Europe," notes Mikael Johansson of SEB Economic Research, Chief Editor of Eastern European Outlook. 
GDP growth in the nine countries covered in Eastern European Outlook will fall from an average of 7.4 per cent in 2007 to 6.0 per cent this year, 4.5 per cent in 2009 and 4.8 per cent in 2010. Russia and Poland stand out, however, with continued decent growth, but the risks are on the downside. Countries with large external imbalances - the three Baltic countries and Ukraine - are the most vulnerable to tighter global credit conditions. Credit growth is clearly slowing from a high level in Ukraine and will fall somewhat further in the Baltics.
"The Baltics are being forced to undergo a tough economic adjustment after their overheating in recent years. Their labour markets have been surprisingly resilient, but unemployment is now climbing. In Estonia and Latvia, most indicators today point towards a lengthy recession which will persist during 2009 as well. A rebound in 2010 is expected to be marginal," Mr Johansson says. 
Russia's economic deceleration will be moderate. The reasons are large federal budget and current account surpluses and the ability to respond to lower demand with a more expansive fiscal policy.
Ukraine's economic outlook has become quickly and noticeably gloomier, after several years of strong expansion. Overheating problems are not being resolved, due to political instability and deteriorating terms of trade.
Poland will experience a soft landing. Underlying economic strength promises relatively good economic performance. The government's new target of a transition to the euro by 2011 seems a year too optimistic.  
Slovakia, the Czech Republic and Hungary will all be relatively hard hit by the euro zone slowdown. Hungary is slowly recovering after its earlier period of tough belt-tightening policies.
SEB is a North European financial group serving some 400,000 corporate customers and institutions and five million private individuals. SEB offers universal banking services in Sweden, Germany and the Baltic countries - Estonia, Latvia and Lithuania. It also has local presence in the other Nordic countries, Poland, Ukraine and Russia and a global presence through its international network in another ten countries. On 30 June 2008, the Group's total assets amounted to SEK 2,304bn (EUR 244 bn) while its assets under management totalled SEK 1,295bn (EUR 137 bn). The Group has about 22,000 employees. Read more about SEB at www.sebgroup.com.
For further information, please contact:
Mikael Johansson, Chief Editor, Eastern European Outlook, SEB Economic Research, tel. +46 8 763 80 93, mobile +46 70 372 28 26Bo Enegren, SEB Economic Research, tel. +46 8 763 85 94, mobile +46 70 718 03 13.
Mats Olausson, Emerging Markets, TCM, tel. +46 8 506 232 62, mobile +46 70 725 03 88.
Elisabeth Lennhede, Press Officer, SEB, tel. +46 707 63 99 16,