Nordea issued Economic Outlook Q1 2011


Nordea issued Economic Outlook Q1 2011

In anticipation of growth

Strong growth on the cards in Russia, Poland and the Baltic countries. Russia and the Baltic countries are recovering from forest fires and financial crisis, respectively, and will see significantly higher growth this year compared with the last. Poland is still going strong and at the very peak of the business cycle.
For all of the countries, the key growth driver is moving gradually from exports to domestic consumption and investment. Upcoming elections are key for the outlook. It is crucial that stability prevails after the presidential elections in Russia and that the EMU will remain the anchor for economic policies in Poland after the general elections.

The Russian economy has slowly regained momentum after the shock last summer, with consumers remaining in the driver’s seat in the recovery process in Q1. We expect further recovery in consumption: deposit growth has finally slowed down and the savings rate has fallen, suggesting that consumers opt for more spending now. This is not surprising, given the recent improvement in labour market, which will support wage growth in the coming quarters.

The Polish economy is still going strong, although momentum seems to be slowing just a bit because of slowing foreign demand growth and tighter economic policies. The labour market is getting stronger and will provide solid support for incomes, but consumers have turned more pessimistic. We expect two more interest rate hikes this year and a gradually stronger PLN. The autumn’s elections are crucial for keeping the EMU as an anchor for economic policies.

The Estonian economic recovery continued strong at the beginning of the year. The outlook has also remained good, as the recovery is spreading from the export sector to the domestic economy. The accelerating inflation poses one of the main concerns, but the still fragile labour markets are expected to keep domestic price pressure in check in the longer term. Government finances are expected to remain strong.

Focus in Latvia is increasingly shifting to growth, and the outlook for the next couple of years has strengthened. The importance of domestic demand for the recovery is expected to gradually increase. While further fiscal consolidation remains on the agenda, so far the deficit has been cut faster than required by the IMF/EU. Presidential elections increase uncertainty in the early summer, but the economic recovery is expected to remain intact.

The Lithuanian economy has entered a new growth cycle. After an encouraging Q1 the outlook for 2011 looks good, although household demand is still facing headwinds from the high structural unemployment, weak wage development and accelerating inflation. However, the government’s fiscal consolidation has continued even faster than planned, still keeping Lithuania on the path to adopt the euro in 2014.

Nordea Economic Outlook may 2011

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