wiiw Current Analyses and Forecasts
Baltic States: Everything for the euro?
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Domestic demand is shrinking after the local housing and credit-driven consumption bubbles burst, which led to a dramatic surge in unemployment and a sharp decline in real wages.
Both households and enterprises are in the process of deleveraging. Not least owing to the massive austerity measures adopted by both governments, deflationary pressures are strong.
GDP growth will only pick up slowly: in Latvia by 0.7% in 2011 and 2% in 2012, and in Lithuania, by 1.5% in 2011 and 2.5% in 2012.
In Estonia similar developments are to be observed; the outlook, however, is somewhat rosier.
The introduction of the euro on 1 January 2011 may bring about a stabilization of private investments and FDI inflows.
Since private demand will remain rather sluggish throughout the forecast period, Estonia - like its Baltic neighbours - is clinging to the hope of a sustained revival of external demand. GDP is expected to grow by 0.5% in 2010, while an upswing of 2.5% is expected for 2011 and 3.5% for 2012.
Countries covered: Baltic States