Eastern European Outlook: Export-driven growth ...
Economic conditions in Eastern Europe (including "Central Europe") will
strengthen in 2011-2012, although fiscal policies will be tightened moderately
in many countries and global growth will level out. Strong, competitive exports
will remain a key driving force this year. Meanwhile consumption and capital
spending are awakening from their crisis-period hibernation and will help
sustain good GDP growth. Eastern Europe was the region of the world hardest hit
by the global credit crisis, mainly due to relatively large borrowing in foreign
currencies, writes SEB in its March 2011 issue of Eastern European Outlook.
The first signs of recovery in private consumption came in 2010, alongside a
rebound in real wage growth, stabilising labour markets and some thawing in
frozen credit conditions. Looking ahead, continued decline in unemployment,
faster wage and salary hikes and gradual normalisation in the credit situation
will contribute to growing consumption.
Rapidly accelerating inflation due to sharply higher global energy and food
prices will partly undermine household purchasing power this year. Underlying
inflation pressure is low but is gradually increasing. Looking ahead, the
commodity price upturn will moderate. The increase in broad inflation measures
will culminate this year, except that in Estonia and Lithuania inflation will
continue to accelerate in 2012.
Large public budget deficits in the wake of the crisis will shrink to more
moderate levels in most countries. Estonia's deficit will rise slightly from a
low level. Public sector debts will continue to grow somewhat; they are low or
moderate, compared to many Western countries.
"Painful austerity policies in the Baltics will soon fade away. In our
assessment, these countries' internal devaluations, including sharp pay cuts,
are over. Private wages and salaries have been increasing again since late
2010. Latvia's budget tightening will continue this year, but Lithuania's fiscal
policy will be more neutral. In Estonia we expect fiscal policy to be
expansionary. Budgetary challenges still remain, however. Latvia and Lithuania
are still running large budget deficits, and their governments' ambition to
bring the deficit down to a maximum of 3 per cent of GDP in 2012 to prepare the
way for euro zone accession in 2014 is in danger. Some further tightening may be
required in Lithuania," says Mikael Johansson, Head of Eastern Europe Research
and Chief Editor of Eastern European Outlook.
SEB's GDP forecasts for 2011-2012 will remain somewhat above consensus, except
in Ukraine:
* Russia's GDP will increase by 5.6 and 5.2 per cent, respectively, in
2011-2012, sustained by high commodity prices. SEB is now raising its Brent
oil price forecast for 2011 to USD 102/barrel from USD 96/barrel. "Higher
oil prices will provide an extra growth impulse and room for a continued
expansionary fiscal policy, although in the short term there is increased
uncertainty about consumption due to rapidly rising inflation," notes
Andreas Johnson, Russia analyst at SEB Economic Research, who predicts that
the central bank will continue to tighten monetary policy and that the
rouble will appreciate further.
* Poland's growth will become more investment-driven, rising to 4.5 and 4.6
per cent. "An expansionary fiscal policy sustained demand during the crisis,
with large budget deficits as a consequence. Further fiscal tightening will
be needed after the autumn parliamentary election in order to meet
nationally established debt limits," according to Daniel Bergvall, Poland
analyst at SEB Economic Research, who predicts that the key interest rate
will continue to be raised and that the zloty will appreciate.
* Ukraine's growth will improve slightly to 4.7 per cent this year. Favourable
world market prices for steel and agricultural products, two major export
industries, will provide support but austerity requirements imposed by
Ukraine's lender, the IMF, will restrain growth.
* Estonia's GDP increase will accelerate to 5.0 and 4.5 per cent,
respectively, in 2011-2012. The export boom is continuing, while domestic
demand is gradually picking up. An unexpectedly rapid labour market
improvement will help fuel consumption. Austerity policies have eased.
* Lithuania's growth will surge to 4.0 and 4.5 per cent in 2011 and 2012.
Exports will continue to drive growth, which will nevertheless become more
broad-based as fiscal tightening softens this year. Emigration and growing
labour shortages will hamper the upturn.
* Latvia, whose upturn is lagging behind Estonia and Lithuania, will see GDP
growth pick up to 4.0 per cent in 2011 and 4.5 per cent next year, but the
domestic economic recovery will be shaky. This is partly because public
budget consolidation is continuing.
 For further information, please Press contact:
contact: Elisabeth Lennhede, Â Press & PR, mobile
+46 70Â 763 99 16
Mikael Johansson, Head of Eastern elisabeth.lennhede@seb.se
Europe Research, SEB Economic
Research, mobile +46 70Â 372 28 26 Ola Kallemur, Press Officer, tel.
 +46 8 763 99 47, mobile +46 76 397 54 66
Daniel Bergvall, SEB Economic
Research, mobile +46 73 523 52 87
Andreas Johnson, SEB Economic
Research, mobile +46 73 523 77 25
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On December 31, 2010, the Group's total assets amounted to SEKÂ 2,180 billion.
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Eastern European Outlook Economic Research – March 2011:
http://hugin.info/1208/R/1499303/434835.pdf
Press release (PDF):
http://hugin.info/1208/R/1499303/434834.pdf
Mikael Johansson:
http://hugin.info/1208/R/1499303/434836.jpg
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[HUG#1499303]