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Baltic Sea Region Report 2012

Baltic Sea Region Report 2012

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Published by Swedbank AB (publ)
Baltic Sea Region Report 2012: Close-by crisis raises reform pressures in the Baltic Sea Region
Baltic Sea Region Report 2012: Close-by crisis raises reform pressures in the Baltic Sea Region

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Published by: Swedbank AB (publ) on Oct 02, 2012
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Baltic Sea Report
Swedbank’s analysis of the economic conditionsand structure of the countries around the Baltic Seafrom a corporate perspective
Swedbank Baltic Sea Analysis
 
No. 33
2 October 2012
 
Close-by crisis raises reform pressures inthe Baltic Sea Region
 
The Baltic Sea region will be affected by the weaker economy and crisis in the eu-ro zone, and GDP growth rates will increase by a modest 2.2% this year, 2.4%next year before a somewhat stronger global growth yields 2.9% in 2014.
 
Our structural index – the Swedbank Baltic Sea Index – has improved from 7.0 to7.1. Overall, the region is ranked among the 30% most competitive economies inthe world. Tax systems and entrepreneurship are, however, weak, and need fur-ther reforms.
 
The business cycle in Germany has shifted down and GDP is expected to grow byabout only 1 % this and next year. Unemployment is so far unchanged, but we ex-pect an increase, which together with the euro zone crisis, will affect the electionsto the Bundestag next year.
 
Poland has so far fared relatively well, but the economy is now slowing down. Inaddition to a weaker external demand, a necessary budget consolidation will dam-pen GDP growth to about 2.5% this and next year.
 
The Baltic economies still remain in a recovery phase, and although export pros-pects are weakening, domestic demand is picking up. GDP growth will slow downto 2.5% – 4.0% in 2012, before increasing to 3.5% – 5.5% in 2013 and 2014. De-spite impressive reforms so far, further efforts are now required to raise the valueadded and meet growing competitiveness pressures.
 
The political developments in both Russia and Ukraine are taking steps backward,and the business sectors are plagued by growing corruption and the erosion of therule of law. The efforts to reform the economies have weakened, but following theelections there are opportunities for new initiatives. GDP growth is forecast at 4 %for both countries, which is significantly below potential and what is needed to re-duce imbalances.
 
Public finances in Finland are strong, but reforms will be necessary to usher in astructural transformation of the private sector. Fiscal policy in Denmark supportsdomestic demand when export performance falters. In Norway, large investmentsin the petroleum sector and increasing private consumption drive growth, while atthe same time imbalances in the economy are growing.
 
Swedish GDP growth is falling back during the autumn as export demand wea-kens, before increasing to 1.7% in 2013 and 2.4% in 2014. Large increases in pub-lic investments and raised budget appropriations to research and innovation aim atstrengthening the long-term growth potential. The main challenge in the short termis to protect competitiveness in the Swedish economy vis-à-vis the rest of theworld.
 
 2
Swedbank Baltic Sea Analysis No. 33 2 October 2012
Contents
Economic Indicators 3The Baltic Sea region faces stiff competition 4Poland no longer immune to the world's ills 13Estonia slower growth founded on domestic demand 17Latvia keep improving competitiveness 21Lithuania temporary lower growth and continued reforms 25Russia freer trade, but reform needs remain great 29Ukraine farther from fulfilling its potential 33Germany downshifting, but not in reverse 37Denmark a shaky recovery 41Norway strong growth but imbalances are increasing 45Finland weak growth and competitiveness 49Sweden companies brace for a weaker global economy 53 Annex: Content, sources and developments of the 57Baltic Sea Index
 
 
Swedbank Baltic Sea Analysis No. 33 2 October 2012
 
3
 
Economic conditions around the Baltic Sea
1)
 October 2012
Economic indicators
2011201220132014201120122013201420112012201320142011201220132014Poland4.32.42.63.54.23.72.72.5-4.3-4.2-4.0-3.7-5.1-3.3-2.9-2.0Estonia8.32.63.74.35.04.03.12.72.1-0.10.0-0.51.1-1.2-0.61.0Latvia5.54.03.55.24.42.52.53.5-2.4-2.3-3.0-4.1-3.5-1.9-1.2-0.7Lithuania5.93.34.14.54.12.83.03.4-3.7-2.5-3.0-3.6-5.5-3.0-2.0-1.0Russia4.33.83.94.38.44.66.66.95.54.12.31.51.60.2-0.30.2Ukraine4.12.83.54.08.06.37.87.5-5.6-5.9-5.4-5.1-2.7-2.8-2.5-2.2Germany3.00.91.01.62.32.02.12.25.75.04.94.8-0.8-0.4-0.1-0.1Denmark0.80.21.11.32.82.42.12.06.66.85.23.81.9-4.01.91.2Norway1.43.82.22.51.30.71.51.813.914.512.511.815.213.113.112.8Finland2.70.51.22.03.52.92.62.3-0.7-0.8-0.8-0.9-0.9-1.7-1.2-0.8Sweden3.90.81.72.43.01.11.32.16.96.76.56.40.1-0.1-0.4-0.2
GDP for Baltic
3.62.2(2,6)2.4(2,9)2.9
Sea countries in total
3)
Inflation(CPI, %)GDP growth
2)
(%)Current accountbalance(% of GDP)Fiscal balance(% of GDP)2011201220132014
 
1. The report also covers Norway and Ukraine.2. Not calendar-adjusted.3. Percentage increase using 2010 GDP weights (PPP). The figure from the Octo-ber 2011 forecast is in parentheses.Sources: National statistics and Swedbank’s own calculations.

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