OREANDA-NEWS. December 18, 2009. Now, when the end of the year is approaching and are publicized new economic outlooks and forecasts on progress of economic activities and recovery chances the Economic Survey Group of DnB NORD Banka has conducted comprehensive comparative survey of macroeconomic situation in the Baltic Rim countries, reported the press-centre of DnB NORD Banka.

Though the range of economic problems during the pre-recession period and the aggregation of implemented recovery-oriented actions are different, the key indicators over the last year display similar performance: unemployment rate is growing, drop of GDP is deeper than ever, in all countries within the region inflation is curtailing or even has appeared the deflation, and the export volumes are shrinking. In Latvia, Lithuania, and Poland the situation is aggravated also by the growing state debt. 

According to expectations, the rate of unemployment in all Baltic Rim countries by the next spring may go over the indicator of 20%, which, in turn, will reduce the consumers' purchasing capacity and therefore the income of the local businesses and the state budget. Moreover, it is expected persistence of disinflation that lately has become apparent in Latvia as well as in other countries. Estonia that has managed to introduce principal reforms in public sector may put trust to fast depletion of fiscal deficit and launching of euro in 2011.

According to the survey, in all Baltic countries of particular importance is the unemployment problem among young people. The fact is alarming, as it facilitates outflow of workforce, which, in turn, may worsen the demographic situation. At the same time is stressed that in the Baltic States and Poland traditionally are signed full-time labour agreements, whereas part-time employment is rather uncommon. It would relieve social tension among the general public as well as unemployment. 

Though all Baltic Rim countries this year have introduced downturn management activities, i.e. amendments to tax legislation, state administration reforms etc, with regard to the year 2010 the Head of Economic Survey Group of DnB NORD Banka Jekaterina Rojaka (Lithuania) points out: "Development scenarios for the nearest future will be different. In Denmark, Poland, and Finland is expected slight economic growth, in Estonia economic activities will remain at the level of 2009, whereas in Latvia and Lithuania is expected overall downturn, though over the second half of the year in economic activities might appear certain rise."

J.Rojaka emphasizes that among advantages of our northern neighbors Estonians are successfully conducted reforms within the public sector, lower corruption level, liberalization of labour market, more prudent fiscal policy and the lowest budget deficit that enables looking for launching of euro as soon as in 2011.  At the same time the currently low debt level facilitates cutting of taxes and therefore attraction of more foreign investments, in particular from the other Nordic countries.

Although Lithuania has the lowest private debt level and the export rate already has improved, the chances of this country, according to experts are the vaguest.  The economy may recover in the second half of 2010, or the recovery process could be postponed by 2012, as it depends on agreement of the government on reduction of the budget deficit, expedition of structural reforms and other factors.

The authors of the survey acknowledge that the recession in Latvia is deeper mainly due to procrastinated reforms in the public sector and near-sighted fiscal policy over the recent years. Future outlook is worsened by insufficient and at the same time inefficient funding for science and education. Yet is also has to be stressed that Latvia bears the highest dormant capability as compared to the neighboring countries - the biggest unemployment means also the best chance to increase output even at the current labour capacity rate. While reduction of the budget deficit in 2009 and acceptance of the state budget for 2010 was difficult and strained, it most likely has prevented further worsening of the existing situation as well as lets us hope that subject to certain efforts Latvia might launch euro in 2013.

As further advantages the experts name utilization of the country's favourable transit location and fast development of air transportation services that has displayed the smallest reduction in exports; further on Latvia might benefit mostly from increase in prices for foodstuff, timber and metals. Good chances retain also engineering industry, pharmacy and production of non-metallic minerals owing to previously made investments.

In the final part of the survey J.Rojaka concludes that every Baltic country has certain advantages that may be employed to become the growth leader within the region.

The survey was conducted by the Economic Survey Group of DnB NORD Banka within the framework of the annual DnB NORD survey "Baltic Rim Economies".