The Baltic Rim economies - Estonia, Latvia, Lithuania, Poland and Russia - have
been fairly isolated from the sovereign debt crisis in the European Monetary
Union. The reason is that public finances are in much better shape in the Baltic
Rim than in Southern Europe. Moreover, Estonia's bid to join EMU, even if
decided before this latest crisis, shows that the convergence process is still
alive.

In Estonia recovery hopes have been further strengthened by the increasing
likelihood of euro adoption in 2011 after the Commission's recommendation. We
consider the risk of a political "no" to be very small. The recovery is expected
to be export-led, with one of the government's main challenges over the coming
years being reducing unemployment and thus supporting consumption.

The Latvian economy is stabilising, and we see a gradual recovery over the
coming quarters. The main support is expected to come from the export sector.
Increasing the uncertainty in the economy is the political instability, which is
likely to intensify ahead of the parliamentary elections in October. The fiscal
consolidation measures for the 2011 budget are likely to be postponed to after
the elections.

The Lithuanian economy is recovering gradually, with Q1 2010 the weakest quarter
since 2005 (in LTL). The main GDP components, except private consumption and
inventories, continued to decline. Nevertheless, consumption is still at weak
levels, and we see households struggling amid declining wages and rising
unemployment. Thus, we expect only lacklustre growth in the economy this year.

In Russia the first estimate for Q1 GDP was weaker than anticipated, indicating
that the early recovery has been slower than expected. However, we expect growth
to pick up later this year, with exports leading the recovery. In the long term
the main risks to growth stem from the subdued activity in credit markets,
capacity constraints in the energy sector and the old and inefficient structures
of the economy.

The slowdown in the Polish economy in Q1 was temporary, and we believe the
recovery is on track. We are seeing more signs of a stabilising labour market
and expect the unemployment rate to peak this year. That could bring new growth
drivers such as investment, credits and the housing market out of their global
financial crisis hideout. However, it also means that we have fiscal and
monetary tightening ahead.

 For further information:
Global Chief Economist Helge J. Pedersen +45 3333 3126
Chief Analyst Anders Svendsen (Poland) +45 3333 3951
Analyst Annika Lindblad (the Baltics and Russia) +358 9 1655 9940



[HUG#1422028]





    Download the report: http://www.nordea.com/baltic-rim-outlook
    Press release (pdf): http://hugin.info/1151/R/1422028/371254.pdf