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Nordea’s analysts in new research report: The Baltic Rim - Europe’s next power hub


1/27/06, Estonia, Latvia, Lithuania and Poland are among the world’s fastest growing economies. With GDP growth up to 8 per cent annually this region could become Europe’s next economic hub. Over the next 20 - 25 years these countries could enjoy a level of affluence on a par with the leading EU countries.

This is what Nordea’s analysts predict in Baltic Rim Outlook, their new research publication. The countries in the Baltic Rim have achieved remarkable progress since the early 1990s. But the potential is not exhausted yet - there is still room to grow substantially.

- Assuming that the Polish economy continues to expand at the current pace, Poland should in 20 to 25 years’ time be on the same level of affluence as Spain and Portugal. Estonia, Latvia and Lithuania are set to draw level with EU core members Holland, Belgium, Luxembourg, France, Italy and Germany, says Senior Analyst Mika Erkkilä, Nordea’s expert on the Baltic countries and Poland.

- The Baltic countries and Poland will become tomorrow’s economic hub in Western Europe. We don’t need to go as far as Asia to talk about tiger economies - they’re on our doorstep, says Mika Erkkilä.
Estonia’s GDP growth will slow marginally in 2006 and 2007 from 8.1 per cent in 2005 to 7.1 per cent and 6.6 per cent, respectively. Part of the explanation is lower exports. Lending is still strong, fuelled by brisk private consumption and a boom in the housing market. EMU entry will most likely be delayed by one year to 2008 due to the country’s relatively high inflation.

Latvia’s rapid economic expansion will receive further impetus from the EU membership and declining interest rate level. The GDP forecast for 2006 and 2007 is 8.0 per cent and 7.2 per cent, respectively. House prices surged by more than 50 per cent in 2005 and the central bank has trouble cooling down the economy. The timetable for EMU entry by 2008 is not realistic. Nordea’s analysts expect a delay of one year, with a possible risk of several years’ delay. This could trigger turbulence in the financial markets.
Lithuania is best positioned to join EMU as early as 2007, as growth is not as strong as in Estonia and Latvia, hence lower inflation. GDP growth is forecast at 6.9 per cent and 6.3 per cent in 2006 and 2007, respectively, and consumption is likely to be curbed through government measures.

For Poland the EU membership era has so far been a bumpy ride. The GDP forecast is positive with growth rates of 4.7 per cent and 4.2 per cent for 2006 and 2007, respectively. The drawbacks are lacklustre private consumption and the likelihood that Poland will not be able to join EMU until 2010.

The report Baltic Rim Outlook can be downloaded at from 10.00.

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