Eastern European Outlook Highlights Clear Deceleration in the Baltics
Central and eastern Europe will continue to show good growth, despite the global economic slowdown and credit crisis as well as surging inflation in the region. This is mainly due to vibrant domestic demand, but also small exposure to the US as an export market. The Baltic countries and Hungary will diverge, showing a weakening trend, according to SEB in a new issue of Eastern European Outlook. Overheated Latvia and Estonia are decelerating markedly, partly because of stricter lending practices. Meanwhile the Baltics and other economies in the region are plagued by major imbalances in the form of large current account deficits and/or high inflationary pressure, which will ease only slowly. In the nine countries covered in the outlook, GDP growth will slow moderately from an average of 7.4% in 2007 to 6.1% in 2008 and 5.6% next year. In most of these countries, consumption is being stimulated by high pay increases and a strong labour market, while investments are being nurtured by EU structural funding and in Ukraine and Russia by pressure for change and major public investment projects. Inflationary pressure, which is largely due to rising energy and food prices, is nevertheless partly eroding purchasing power.