Courtesy of The Baltic Course   March 16, 2016


Lithuania’s gross domestic product (GDP) will grow by 3.2% in 2016 and by another 3.6% next year, chief economist for the Baltic countries at Nordea bank forecasts, reports LETA/BNS.

Domestic consumption would continue as the key driver of economic growth in the Baltic countries since, with Russia’s market still closed, exports would remain weak, he said.Latvia’s economy would expand by 2.7% in 2016 and by 3.2% in 2017 whereas Estonia’s economy would grow by 2% and 2.7%, respectively, Zygimantas Mauricas said at the bank’s web conference on Wednesday.

In its spring economic forecast, Nordea has cut the 2016 economic growth estimate for Estonia to 2% from an estimate of 2.7% published in December. The growth estimate for 2017 was lowered by 0.2 percentage points to 2.7%.

“As a result of weak external demand, Estonia’s average rate of growth in the past two years has been 2%,” Nordea Estonia chief economist Tonu Palm said. He said Estonia’s government debt is stable and the economy well balanced. The level of investment meanwhile is too low and stands below the long-term average.

“Growth in Estonia’s export revenue depends increasingly on businesses expanding their scope to cover the European export markets boasting more stable growth and a high standard of living,” NordeaEstonia chief economist Tonu Palm said.

Thus far, the decline in export markets has been aggravated by declining export prices. “Against the backdrop of risks on the emerging markets, the global deflationary environment is receding slowly,” Palm said.

He added that in the longer run higher export prices will be supported by factors such as diversification of export markets and offering products higher up in terms of value-added in the subcontracting chain.

“The share of technology, information and communication technology and other research intensive sectors must grow significantly,” Palm said.

The share of Russia as destination for Estonia’s export of goods in January was just 4.3%, compared with the Nordic countries accounting for 44%. In addition to exports to neighboring countries Estonia’s exports to the UK and Germany have grown.

Nordea estimates Estonia’s consumer price index to move up by 0.2% this year, compared with the December forecast of annual CPI inflation of 2%. In 2017, inflation is estimated to hit 2.6%.

The rate of unemployment is estimated to be 6.3% in 2016, 0.2 percentage points higher than the estimate published in December. Unemployment is estimated to hit 7.1% next year.

Nordea‘s wage growth estimate for Estonia is 4.6% for 2016 and 5.7% for 2017.

The Latvian gross domestic product (GDP) will grow 2.7% this year and 3.2% next year, according to estimates by analysts of Nordea Bank.

Wages in Latvia are likely to grow 4.5% this year and 4% in 2017.

Gints Belevics, Nordea economic expert in Latvia, said that the labor market in Latvia was overheating as evidenced by accelerating wage growth in the context of high unemployment.

Many jobless can’t find work because their skills don’t match demand in the labor market, Belevics said, noting the need for structural changes. The unemployment rate is around 5% in the Latvian capital Riga but close to 20% in the Latgale province in Latvia’s east, and employment opportunities in Riga lure people away from countryside.

Mauricas said that the Baltic States would have demonstrated steeper economic growth last year but for the negative effects of the Russian sanctions. Without these effects, economic growth would have been 3.5% in Latvia, 2.5% in Estonia and 4.2% in Lithuania.