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SEB report: Export-driven growth gains strength in Eastern Europe

SEB report: Export-driven growth gains strength in Eastern Europe

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Published by SEB Group
Eastern European economies will strengthen in 2011 on the back of greater household purchasing power and competitive exports, states SEB's Eastern European Outlook released Wednesday. Overall, economic conditions will strengthen across the region over the next two years, with exports driving growth this year.
Eastern European economies will strengthen in 2011 on the back of greater household purchasing power and competitive exports, states SEB's Eastern European Outlook released Wednesday. Overall, economic conditions will strengthen across the region over the next two years, with exports driving growth this year.

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Published by: SEB Group on Mar 23, 2011
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04/05/2011

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Export-driven growth gainsstrength as domestic demandawakensTheme: Impact o the globalcommodity price shock on infation
Eastern EuropeanOutlook
Economic Research – March 2011
 
Eastern European Outlook – March 2011 | 3Economic Research
Eastern European Outlook
is produced twice a year. This report was published on March 23, 2011.It was written by Mikael Johansson (Chief Editor), Daniel Bergvall, Dainis Gaspuitis, AndreasJohnson, Hardo Pajula and Vilija Tauraite.Robert Bergqvist Håkan FrisénChief Economist Head of Economic Research+ 46 8 506 230 16 + 46 8 763 80 67Daniel Bergvall Mattias BruérEconomist Economist+46 8 763 85 94 + 46 8 763 85 06Ann Enshagen Lavebrink Mikael JohanssonEditorial Assistant Economist+ 46 8 763 80 77 + 46 8 763 80 93Andreas Johnson Tomas LindströmEconomist Economist+46 8 763 80 32 + 46 8 763 80 28Gunilla Nyström Ingela HemmingGlobal Head of Personal Finance Research Global Head of Small Business Research+ 46 8 763 65 81 + 46 8 763 82 97Susanne Eliasson Johanna WahlstenPersonal Finance Analyst Small Business Analyst+ 46 8 763 65 88 + 46 8 763 80 72SEB Economic Research, K-A3, SE-106 40 StockholmHardo Pajula Dainis GaspuitisEconomist, SEB in Tallinn Economist, SEB in Riga
hardo.pajula@enskilda.ee dainis.gaspuitis@seb.lv
+372 6655173 +371 67779994Gitanas Nauseda Vilija TauraiteChief Economist, SEB in Vilnius Economist, SEB in Vilnius
gitanas.nauseda@seb.lt
 
vilija.tauraite@seb.se
+370 5 2682517 +370 5 2682521
 
Summary
4 | Eastern European Outlook March 2011
Economic conditions in Eastern Europe will strengthen in 2011-2012, although scal poli
-cies will be tightened moderately in many countries and global growth will level out.Strong, competitive exports will remain a key driving force this year. Meanwhile con-sumption and capital spending are awakening from their crisis-period hibernation and willhelp sustain good GDP growth. Eastern Europe was the region of the world hardest hit bythe global credit crisis, mainly due to relatively large borrowing in foreign currencies.
The rst sign of recovery in private consumption came in 2010, alongside a rebound in
real wage growth, stabilising labour markets and some thawing in frozen credit condi-tions. Looking ahead, continued decline in unemployment, faster wage and salary hikesand gradual normalisation in the credit situation will contribute to growing consumption.
Rapidly accelerating ination due to sharply higher global energy and food prices willpartly undermine household purchasing power this year. Underlying ination pressure is
low but is gradually increasing. Looking ahead, the commodity price upturn will moder-
ate. The increase in broad ination measures will culminate this year, except that inEstonia and Lithuania ination will continue to accelerate in 2012.Large public budget decits in the wake of the crisis will shrink to more moderate levelsin most countries. Estonia’s decit will rise slightly from a low level. Public sector debts
will continue to grow somewhat; they are low or moderate, compared to many Westerncountries.SEB’s GDP forecasts for 2011-2012 will remain somewhat above consensus, except inUkraine:
 
ƒ
Russia’s
GDP will increase by 5.6 and 5.2 per cent, respectively, in 2011-2012, sus-tained by high commodity prices. SEB is now raising its Brent oil price forecast for2011 to USD 102/barrel from USD 80 in Eastern European Outlook, October 2010, andmore recently USD 96/barrel. This will provide an extra growth impulse and room for
a continued expansionary scal policy, although in the short term there is increaseduncertainty about consumption due to rapidly rising ination. The central bank will
continue to tighten monetary policy, and the rouble will appreciate further.
 
ƒ
Poland’s
growth will become more investment-driven and rise to 4.5 and 4.6 per
cent. Further scal tightening will be needed after the autumn parliamentary elec
-tion in order to meet nationally established debt limits. The key interest rate willcontinue to be raised, and the zloty will appreciate.
 
ƒ
Ukraine’s
growth will improve slightly to 4.7 per cent this year. Favourable worldmarket prices for steel and agricultural products, two major export industries, willprovide support but austerity requirements imposed by Ukraine’s lender, the IMF, willrestrain growth.
 
ƒ
Estonia’s
GDP increase will accelerate to 5.0 and 4.5 per cent, respectively, in 2011-2012. The export boom is continuing, while domestic demand is gradually pickingup. An unexpectedly rapid labour market improvement will help fuel consumption.Austerity policies have eased.
 
ƒ
Lithuania’s
growth will surge to 4.0 and 4.5 per cent in 2011 and 2012. Exports will
continue to drive growth, which will nevertheless become more broad-based as scal
tightening softens this year. Emigration and growing labour shortages will hamper theupturn.
 
ƒ
Latvia
, which is lagging behind Estonia and Lithuania, will see GDP growth pick up to4.0 per cent in 2011 and 4.5 per cent next year, but the domestic economic recoverywill be shaky. This is partly because public budget consolidation is continuing.

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