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
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.