SEB, Eastern European Outlook: Renewed domestic demand but moderate GDP growth
The export-led recovery of the past year in Eastern Europe - which in many places has been stronger than in Western Europe - is continuing. But the export-oriented manufacturing upturn is now entering a more mature phase, due to decelerating global growth. Meanwhile domestic demand is awakening, thanks to the resumption of real wage growth, stabilising labour markets and a gradual thaw in still-inhospitable credit conditions. Eastern Europe was the region of the world that was hardest hit by the global credit crisis, mainly due to its relatively large foreign loans. Overall GDP growth will continue at a moderate pace in most of the region during 2011-2012, writes SEB in its October 2010 issue of Eastern European Outlook.
A special theme article discusses the internal devaluations in the three Baltic countries. Its conclusions are that the wage-cutting process has now largely ended and that the Baltics is recapturing export market shares.
"Despite increased global economic risks, mainly via the United States, we continue to have a relatively optimistic fundamental view of Eastern Europe. Our GDP forecasts are relatively unchanged since the last Eastern European Outlook in March and remain above consensus. Eastern European exports generally appear to be competitive, which is evident because these countries are gaining market shares. In addition, their trade with the US is very small," says Mikael Johansson, Head of CEE Research at SEB and Chief Editor of Eastern European Outlook.
Economic growth in the six countries covered in the report will not, however, return to its previous high rates - which led to severe imbalances - but will instead barely reach its potential level. The report points out structural obstacles to growth, such as sizeable labour market and emigration problems in all three Baltic countries and a slow pace of reform in Russia. In addition, there will be fiscal tightening in Poland and Ukraine and, over time, in Russia as well. In the Baltics, Latvia will stick to fiscal austerity.
"Russia will enjoy decent growth, sustained by high commodity prices and in the short term also by continued expansionary fiscal policies. Consumption has started to rebound this year and will be an increasingly important economic engine. Meanwhile Russia ought to be capable of achieving higher GDP growth than around 5 per cent. Reform efforts are moving sluggishly, and more would need to be done in education and in the judicial and transport systems, for example," says Andreas Johnson, Russia and Ukraine analyst at SEB Economic Research.
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
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Mikael Johansson, Chief Editor, Eastern European Outlook, SEB Economic Research