Eastern European resilience eroding, with lengthy recession seen in Estonia, Latvia: SEB

The resilience of Central and Eastern Europe in the face of the global economic slowdown is starting to erode, according to the October 2008 issue of Swedish bank SEB’s Eastern European Outlook. While many countries in the region that has become a favourite target for many property investors in recent years have maintained growth as a result of vibrant domestic economies, SEB has now adjusted downwards growth forecasts for regional economies. It also notes that most indicators for Estonia and Latvia point to a lengthy recession that will last during 2009 as well.

‘Because of intensified global financial stress, the global economic outlook has become even gloomier just in the past month,’ noted Mikael Johansson of SEB Economic Research, the chief editor of the Eastern European Outlook. ‘This will have unavoidable consequences for Central and Eastern Europe as well, especially since the financial crisis has also reached Western Europe in earnest. In our new scenario, Central and Eastern Europe can no longer be viewed as a strong growth region, even though many countries are of course showing good growth compared to Western Europe.’

SEB said that the nine countries covered in the outlook would fall from an average of 7.4% in 2007 to 6.0% this year and 4.5% in 2009 before rising to 4.8% again in 2008. Russia and Poland stand out for their continued decent growth but SEB points to risks on the downside. Countries with large external imbalances—the Baltic countries of Estonia, Latvia, Lithuania as well as Ukraine--are seen as the most vulnerable to tighter credit conditions.