Eastern European Outlook: Shaky recovery, budge...

Eastern Europe is the region hardest hit by the global credit crisis
and recession, largely due to its relatively large exposure to
foreign currency borrowing. During the summer, the economic cycle has
nevertheless bottomed out in Eastern Europe as well. But the recovery
will be shaky and uneven. The main reasons are public sector budget
consolidation and the fact that credit tightening will ease only
slowly, predicts SEB in its October 2009 issue of Eastern European
Outlook.


Exports will gradually strengthen. Domestic demand will remain weak
in the coming year, however; households will be squeezed by a weak
wage and salary trend and by rising unemployment, while corporate
capital spending will be hampered by large idle production capacity
and cautious lending practices.

"Our conclusion is that the recovery in Eastern European will be
highly dependent on a continued upturn in the world economy,
especially in the euro zone, which is a major export market for
Eastern Europe," says Mikael Johansson of SEB Economic Research,
Chief Editor of Eastern European Outlook.

Poland is the only EU country to start its recovery without having
fallen into recession, and Eastern European Outlook expects a
continued gradual strengthening of Polish growth in 2010-2011. Russia
will recuperate at only a moderate pace from its historic GDP decline
in the first half of 2009, despite being buoyed by higher commodity
prices. The Ukrainian economy will return to only weak positive
growth in 2010. Of the three Baltic countries, Estonia is best
positioned for recovery, with GDP growth ending up around zero in
2010 and rising the year after. In Latvia and Lithuania, GDP will
continue to shrink next year, though only moderately. These countries
will resume positive growth on an annual average basis only in 2011.

In many countries of the region, certain key economic imbalances such
as large current account deficits and high wage-driven inflation have
been wiped out. Remaining as challenges are necessary budget
corrections after very large 2009 deficits in many countries, higher
than in the euro zone. Thanks to continued international bail-out
loans, Eastern European Outlook expects hard-pressed Latvia and
Ukraine to avoid suspension of payments.

In the Baltics, depressive economic forces will remain in place next
year. Painful austerity policies will continue, including further pay
cuts to restore lost competitiveness. Political tensions have
increased, especially in Latvia and Estonia. There is a risk that
exchange rate worries will re-emerge in the run-up to the Latvian
Parliament's vote on the 2010 budget. It is also still an open
question whether Estonia will meet the vital budget deficit criterion
for the desired euro zone accession in 2011.

"Our main scenario is that the Baltic countries' fixed exchange rates
against the euro will survive and that the international loan
programme will remain on track. The coalition government in Latvia
will probably work out a new austerity proposal for 2010 that the EU,
the IMF and the Nordic countries will accept," Mr Johansson
concludes.


SEB is a North European financial group serving some 400,000
corporate customers and institutions and five million private
individuals. SEB offers universal banking services in Sweden, Germany
and the Baltic countries - Estonia, Latvia and Lithuania. It also has
local presence in the other Nordic countries, Poland, Ukraine and
Russia and a global presence through its international network in
major financial centers. On 30 June 2009, the Group's total assets
amounted to SEK 2,374bn (~EUR 220bn) while its assets under
management totalled SEK 1,267bn (~EUR 120bn).The Group has about
20,500 employees. Read more about SEB at www.sebgroup.com.

_____________________________________________
For further information, please contact:
Mikael Johansson, Chief Editor, Eastern European Outlook, SEB
Economic Research, tel. [phone], mobile [phone].
Elisabeth Lennhede, Press & PR, tel. [phone],
[e-mail]


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