OREANDA-NEWS. November 18, 2010. In their overview of the economic situation in four countries of the Baltic region, analysts of DnB NORD bank forecast that the economies of all countries will grow next year. Poland and Estonia will lead the region. The high unemployment and emigration rates, as well as the necessity for further fiscal consolidation, will be the main obstacles to economic growth in Lithuania and Latvia, reported the press-centre of DnB NORD bank.

The signs that the quality of the loan portfolio is stabilising this year suggest that in 2011 the credit market will get improve in the Baltic states.

Lithuania, Latvia, Estonia and Poland should anticipate higher inflation next year. Emigration and emerging structural labour supply bottlenecks, in spite of a high unemployment in the Baltic states, will once again exert upward pressure on wages, which may have a negative effect on the competitiveness of the countries.

Estonia. The country has managed to avoid public finance problems thanks to its consistent economic policies and more effective public sector, as the government and opposition have been able to reach consensus on strategic issues with surprising ease. As other countries continue their fiscal consolidation, Estonia is already talking about potential direct tax cuts. The unemployment rate remains very high, however, it has been rapidly decreasing of late. The country attracts a remarkable level of direct investment, and expectations of businesses and households have been improving. The high debt level in the private sector is the only significant barrier to the economic growth.

Poland. Better political relations with Russia open new opportunities to develop exports eastwards. Pragmatic domestic and foreign policy increase the attractiveness of the Polish market for investors. Positive consumer and business expectations as well as a relatively low debt level of the private sector are creating excellent prospects for stronger domestic consumption. It is likely that the country will post some of the highest growth rates across the EU both for 2010 and in 2011.

Lithuania. The economic recovery relies on exports but the domestic market remains weak. Poor investment indicators, weak competitiveness of the Lithuanian economy and a prolonged process of attempting reforms to the inefficient public sector and improving the overall business climate give little hope for sustained export growth. Future prospects of the country are hampered by disagreements among the political elite and an extremely high level of emigration that is thinning the ranks of the skilled workforce.
 
Latvia has experienced the deepest economic downturn. The country faces the same problems as Lithuania: weak domestic demand that will take some time to revive, a large hole in the state treasury, accelerating migration and a divided political elite. The total debt level of companies and households in the country remains much higher than in Lithuania or Poland, while the role of visible exports is undercut by the weak potential of the manufacturing industry. However the government of Latvia has introduced vigourous reforms compared to Lithuania‘s, and this, together with the low reference base of 2010, may lead to faster economic growth in 2011.