OREANDA-NEWS. April 11, 2012. SEB’s Eastern European Outlook is moderately optimistic about the growth prospects for the region. First and foremost, this assessment applies to the two biggest economies in the region: Russia and Poland. At the moment, both have the advantage of relatively closed economies: exports account for a relatively small share of GDP, and dependence on euro zone banks is fairly limited as well. Public debt in these countries, too, is quite modest, with prices of energy carriers – currently on the rise – also speaking in Russia’s favour, reported the press-centre of SEB Pank.

So it is, in the estimation of the economists at the Group, that growth prospects for countries in Eastern Europe largely depend on the degree of their vulnerability in the face of a steep drop in euro zone import demand and a substantial contraction in external financing. It is precisely in this respect that Russia and Poland enjoy significant advantages amongst the other countries in the region. The Baltic States and the Czech Republic are caught between the two growth poles: the expected growth there is eclipsed by that in Russia and Poland, yet is much more promising than that in the southern parts of the region. The Outlook notes that the recent sizable liquidity injections into the euro zone banking system by the Central European Bank have, amongst other things, significantly reduced the risk of an extensive and long-term credit crunch in Eastern Europe.

Estonia’s economy has been most affected by the considerable deterioration in the growth prospects for its external trade partners, indicated, above all, by the continued decline in confidence indices in Sweden and Finland. Accordingly, our growth forecast for 2012 is now one-half of the 3% suggested last autumn. Along with that, our forecast for the unemployment rate for next year has also increased: it is now 14%, a percentage point higher than what was suggested by the Outlook last October.

In our view, our growth assessment for the short-term is relatively balanced, that is, the actual outcome may deviate either upwards or downwards with equal probability. On the one hand, the change of course by the European Central Bank may indeed boost growth in the euro zone somewhat; on the other hand, worse than expected developments in the economies of Sweden and Finland may propel us into a new recession already this year.

On this point, domestic demand, which continues to be strong, should not blind us to the fact that, no matter what, in a small open economy exports will remain the source of stable growth in the long term. Growth forecasts for the longer term continue to be very uncertain. Though we are expecting the economy to rally slightly (up to 2.5%) next year, this may prove too optimistic. The European Central Bank may well be able to forestall the worst at first; however, that said, it is clear that the debt crisis in the euro zone has no simple and fast solution. Consequently, we also have to be prepared for a steep deterioration in the economic environment in the next three to four years.