A return to robust economic growth not expected for at least another two years, immediate reforms a top priority- DnB NORD Economic Research Group

Bank DnB NORD’s Economic Research Group predicts that out of the six Baltic Rim countries, moderate economic growth will be seen in Poland, Finland and, possibly Estonia in 2010, while Denmark, Lithuania and Latvia will need more time to climb out of recession.

Baltic Rim Economies: Growth and Constrains, the latest comparative analysis of economic development in the Baltic Rim region by DnB NORD’s Economic Research Group, forecasts unemployment rate reaching possibly 20% by next spring in the three Baltic states. This will translate into low consumer expectations, flat domestic consumption and zero growth of earnings, all of which will contribute to the deflationary processes the region is experiencing. Only Estonia, which has been more successful in reforming its public sector, in comparison to Latvia and Lithuania, can expect a substantial fiscal deficit decrease and adoption of the euro in the near to medium term.

•Denmark: the expansive budget policy will help mitigate the negative effects of the crisis, however a high level of indebtedness among businesses and households in the country will cause one of the longest recessions in the European Union (EU).

•Finland: the country faces one of the deepest recessions among the old EU members due to the sensitivity of its exports to the global economic crisis. Finland’s recovery will be gradual, and rather sluggish in 2010, impeded by a high unemployment rate.

•Estonia: decisive action in an effort to adopt the euro in 2011 and a clear recession exit strategy will enable the country to take the leading position in the Baltic trio and outrival the other Baltic States in the competition for foreign direct investments.

•Lithuania: political disagreements and floundering reforms in the public sector are undermining hopes of rapid economic recovery. The country will not be able to avoid a protracted depression without a targeted investment, small business stimulus package and restructuring of the public sector. The incumbent Government has asserted its commitment to launch the necessary reforms next year, but it still lacks political support to do so.

•Latvia: lack of political will and rapidly rising sovereign debt may result in the erosion of the public sector, loss of competitiveness and the country’s investment appeal. However, immediate structural reforms of public sector and further improvement of the business environment would help the country move forward.

•Poland: the modest level of liabilities amongst both businesses and households, a large domestic market and flexible exchange rate helped the country resist the worst effects of the global economic crisis, and will help insulate Poland from economic problems in the immediate future.

The country could soon rival Estonia in terms of the average purchasing power. Nevertheless, growing debt of the government sector is a source of concern in the long-term.