2013-03-20 10:03:56 -
Economic growth in Eastern (including Central) Europe has bottomed out in the
past 3-6 months, as in the West. And just like the pattern in Western Europe,
the northern part of Eastern Europe is performing better than the southern part.
The three Baltic countries in particular, but also Russia and Poland, will
continue to show decent GDP growth during 2013-2014 while Ukraine will remain
mired in economic stagnation this year as well. Countries in central and
southern parts of the region, such as the Czech Republic and Hungary, are
climbing extremely slowly out of recession while Croatia and Slovenia will
continue to show negative growth, writes SEB in the latest issue of its twice-
yearly Eastern European Outlook.
The northern part of Eastern Europe is displaying relatively good resilience to
global slowdown and the euro zone debt crisis, largely because their
economies and banking sectors are in relatively good fundamental shape and
because Russia is benefiting from continued high oil prices of around USD
110/barrel. Countries in the southern part of the region have larger internal
imbalances and their banks are squeezed more by the problems in Western Europe.
Unemployment is gradually falling in the Baltics and Russia, but will rise in
Poland this year and remain stuck at a high level in Ukraine. Large emigration
from the Baltics in recent years is causing some bottleneck problems in their
labour markets. Although pay increases are generally speeding up, the cost
situation is under control with the possible exception of Estonia. Export
competitiveness thus remains good, after earlier internal devaluations. In
Russia, the jobless rate has already dropped below its equilibrium level,
generating cost pressures and growth problems generally. This year, inflation
will continue to fall in the Baltics and Poland but rise somewhat in Russia and
rebound clearly in Ukraine, despite its economic crisis.
A separate theme article in the report examines the euro timetable for the seven
European Union (EU) countries in Eastern Europe that remain outside the euro
zone. At present, only Latvia meets all the Maastricht criteria for euro zone
membership, SEB's analysis shows. For a long time, SEB's assessment has been
that Latvia will convert to the euro as planned in 2014; in this spring's coming
evaluations by the European Commission and the European Central Bank (ECB), the
country is expected to meet all the criteria by a wide margin. But no wave of
new euro zone memberships by the EU countries in Eastern Europe can be expected;
for most of them, accession will be delayed for some years. The main reason is
that, except for Lithuania, their governments have made their ambition to adopt
the common currency a lower priority due to the euro zone crisis.
"Most EU countries in Eastern Europe, except for Latvia and Lithuania, probably
make the assessment that it is too uncertain to join the euro zone during the
next few years. The crisis has made it unclear where the euro zone is headed,
for example in terms of supranationalism in fiscal policy and the stability of
the euro in general. These Eastern European countries are waiting to see the
outcome of the euro zone crisis before the question of adopting the currency
comes up again on their political agenda," says Mikael Johansson, Head of
Eastern European Research at SEB and Chief Editor of Eastern European Outlook.
Here are the GDP forecasts for the six countries that Eastern European Outlook
* Russia's growth will cool slightly to 3.0 per cent this year and 3.5 per
cent in 2014. "Given historically low unemployment, the economy is already
hitting its resource ceiling, and far-reaching reforms will be needed to
lift its growth potential to President Vladimir Putin's 5-6 per cent
target," says Andreas Johnson, Russia and Ukraine analyst at SEB Economic
* Poland is recovering from a deep domestic slump, aided in part by the big
decline in interest rates over the past six months - but the central bank is
finished cutting interest rates. This year, GDP will increase about as much
as last year, 2.1 per cent. In 2014, growth will speed up to 3.5 per cent,
still below the potential rate of around 4 per cent.
* Ukraine will see zero growth again this year, and GDP will rise 1.8 per cent
in 2014. The economy is hard pressed by a big current account deficit and
sagging confidence. A new bail-out loan from the International Monetary Fund
is needed, and a devaluation is expected in the second quarter of this year.
* Estonia's growth will accelerate from 3.2 per cent last year to 3.8 per cent
in 2013 and 3.7 per cent in 2014. This is still below potential, which is
roughly 4 per cent in all of the Baltic countries. As elsewhere in the
Baltics, growth will be relatively balanced.
* Latvia remains the fastest-growing of all the EU countries. A temporary dip
from last year's 5.5 per cent to 3.8 per cent will occur this year. In
2014, growth will revert to 5 per cent.
* Lithuania's GDP will increase by 3.2 per cent this year and 3.5 per cent in
2014, after last year's 3.6 per cent growth.
For further information, please Press contact
contact Anna Helsén, Group Press officer
Mikael Johansson, Head of Eastern +46 8 763 9947, + 46 70 698 4858
European Research, email@example.com
SEB Economic Research
+46 70 372 2826
Daniel Bergvall, SEB Economic Research
+46 73 523 5287
SEB is a leading Nordic financial services group. As a relationship bank, SEB in
Sweden and the Baltic countries offers financial advice and a wide range of
financial services. In Denmark, Finland, Norway and Germany the bank's
operations have a strong focus on corporate and investment banking based on a
full-service offering to corporate and institutional clients. The international
nature of SEB's business is reflected in its presence in some 20 countries
worldwide. On December 31, 2012, the Group's total assets amounted to SEK 2,453
billion while its assets under management totalled SEK 1,328 billion. The Group
has about 16,500 employees. Read more about SEB at www.sebgroup.com
Eastern European Outlook (PDF):
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