Eastern European Outlook: Deep recession - fina...

Eastern Europe is the region being hardest hit by the global credit
crunch and recession. The reason is that the vigorous expansion of
recent years has largely been built on foreign loans. Consequently,
growth also fell precipitously when financing conditions drastically
deteriorated. The economic downturn will now deepen further, SEB
predicts in its April 2009 issue of Eastern European Outlook.


During 2009, GDP will decline sharply in four of the six countries in
the Central and Eastern European region covered in this report:
Estonia, Latvia, Lithuania and Ukraine. In Poland and Russia, the
downturn will be more moderate, thanks to relatively good
fundamentals. Only in 2010 will these economies stabilise, but GDP
will continue to fall in the three Baltic countries and Ukraine.
Current account deficits, which are large in several of these
countries, will shrink greatly in the wake of collapsing imports.
Inflation will also fall sharply but remain at high levels in Russia
and Ukraine.

Because of major economic imbalances at the outset, the countries of
Central and Eastern Europe remain vulnerable in terms of their
financing needs. The currencies of Russia, Ukraine and Poland will
weaken somewhat further in the short term due to downward adjustments
in growth forecasts for the region, as well as a global decline in
risk appetite.

Russia is moving into a recession despite massive economic stimulus
measures. The twin surpluses in the federal budget and the current
account will turn into twin deficits.

In the Baltics, governments will continue their painful austerity
policies. There may be further budget cutting. Economic imbalances
are being adjusted by slashing wages and prices, so-called internal
devaluation.

"Our main scenario is that the currency pegs of the Baltic countries
will survive. These countries will receive continued international
backing from the IMF and EU. We expect the IMF to accept a somewhat
larger budget deficit in Latvia and expect the IMF programme to
remain in operation," says Mikael Johansson of SEB Economic Research,
Chief Editor of Eastern European Outlook.

In Lithuania, which has managed so far without IMF/EU aid, the need
for a support package is increasing. In Ukraine, we assume that the
IMF will resume its aid. Political developments in Ukraine will
remain shaky, and there is continued financial systemic risk.

The issue of joining the euro zone is being raised once again in
Central and Eastern Europe. Estonia's new target date for membership,
July 2010, is within reach based on an economic assessment, but when
all is said and done, the decision is a political one within the EU.
We expect Latvia to adopt the euro in 2012 at the earliest. Lithuania
is aiming at 2011-2012 but SEB believes accession will not happen
before 2013. As for Poland, our assessment is that the government is
too optimistic about its euro timetable and will be forced to
postpone its membership target from 2012 to 2013 due to a swelling
budget deficit. In addition, the zloty's accession to the exchange
rate mechanism ERM2 will be postponed from the first half of this
year to the end of 2009 at the earliest.


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 31 December 2008, the Group's total
assets amounted to SEK 2,511bn (~EUR 230bn) while its assets under
management totalled SEK 1,201bn (~EUR 110bn).The Group has about
22,000 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].
Bo Enegren, SEB Economic Research, tel. [phone], mobile +46
70 718 03 13.
Press contact: Elisabeth Lennhede, [phone]


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