Eastern European recovery will be 'uneven' - SEB

The recession has bottomed out in Eastern Europe, but recovery will be shaky and uneven, Swedish financial group SEB predicts in the October 2009 issue of its Eastern European Outlook. The main reasons for the fragile recovery are public-sector budget consolidation and the fact that credit tightening will ease only slowly, SEB said.

'Our conclusion is that the recovery in Eastern European will be highly dependent on a continued upturn in the world economy, especially in the eurozone, which is a major export market for Eastern Europe,' said Mikael Johansson of SEB Economic Research.

Poland is the only EU country to start its recovery without having fallen into recession, and SEB expects a continued gradual strengthening of Polish growth in 2010-2011. Russia will recuperate at only a moderate pace from its historic GDP decline in the first half of 2009, despite being buoyed by higher commodity prices.

The Ukrainian economy will return to only weak positive growth in 2010. Of the three Baltic countries, Estonia is best positioned for recovery, with GDP growth ending up around zero in 2010 and rising the year after. In Latvia and Lithuania, GDP will continue to shrink next year, though only moderately. These countries will resume positive growth on an annual average basis only in 2011.

In many countries in the region, certain key economic imbalances such as large current account deficits and high wage-driven inflation have been eliminated, SEB said. Remaining challenges include budget corrections after very large 2009 deficits in many countries which exceed those in the eurozone. Thanks to continued international bail-out loans, SEB expects hard-pressed Latvia and Ukraine to avoid suspension of payments.