Nordea issued Economic Outlook Q1 2010


Nordea issued Economic Outlook Q1 2010

Spring brings economic turnaround

2010 has so far been a year with much drama on the economic front; not least Europe has attracted a great deal of attention. The serious debt problems in a string of EU countries, with Greece as the worst example, have set the agenda. Add to this that Europe has been in the grip of one of the coldest winters on record and that the ash from the volcanic eruption in Iceland has not yet left the European airspace.

Against this background, it is even more encouraging that several economic data now indicate that Europe is finally sensing the dawn of better things to come, says Nordea’s Global Chief Economist Helge J. Pedersen.

The Estonian economy is slowly turning, and export-led growth is expected in 2010. We have revised upwards our growth forecast for 2010 on recovering export demand. Reducing unemployment to support private consumption will be one of the main challenges in the near term. Estonia fulfils all the Maastricht criteria, and we expect euro adoption in 2011, as the risk of a political “no” is small.

The Latvian economy is still declining, as especially private consumption and investment have remained on a weakening trend. Although devaluation speculation has calmed down, renewed worries cannot be ruled out. Especially political instability is a risk ahead of the parliamentary elections in October and the cuts in the 2011 budget are likely to be postponed to after the elections.

In Lithuania the economy is seen improving gradually, with the steepest drop in GDP in Q1 2009. However, the economy has mainly been supported by the stabilisation in exports and inventory rebuilding. We have revised upwards our growth forecast for 2010 based on strong export demand. A challenge in the near term will be cutting the budget deficit, which currently postpones EMU membership to at least 2014.

We expect the Russian economy to recover faster than earlier anticipated in 2010, as the export sector gains strength on rising commodity prices and improving global demand. The pace of growth is, however, restrained by a slow recovery in private demand, as especially the credit markets are tight. On a longer horizon, risks for the economy are exerted by eg increased protectionism and the economy’s raw material dependence.

In Poland focus is still on the possible consequences of the tragic plane crash. We do not expect any major policy shifts, but the implications could be slightly earlier fiscal tightening and a slight postponement of the first rate hike. We have revised upwards our growth forecast for this year and now see the first early signs that the labour market may be close to its weakest point.

Nordea Economic Outlook 1Q2010

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