Analytics, Baltic States – CIS, Economics, EU – Baltic States, Investments, Latvia, Lithuania

Lithuania's growth projection has been cut due to reducing exports to Russia, but in Latvia's case, the reduction is because of the slow increase in the volume of investments in Latvia, explained Nordea economist in Lithuania Zygimantas Mauricas.

According to Nordea, Latvia's gross domestic product will increase 2.2% this year, 3.5% in 2016 and 3% in 2017. At the beginning of the year, Nordea’s GDP growth projection for Latvia this year was 2.6%.

Lithuania's GDP is projected to increase 2.2% this year, 4% in 2016 and 3.5% in 2017.

Estonia's economic growth is expected to reach, respectively, 2%, 3%, and 3.2%.

According to Nordea experts, the Baltic economies have been able to withstand the economic crisis in Russia quite successfully. Domestic consumption, fueled by the fast-growing wages, as well as reducing unemployment and low inflation still remain the main driving force behind the economic growth in the three countries.

Commenting on the situation in the euro area, Mauricas said keeping Greece in the eurozone had strengthened the eurozone as well as the entire European Union.

The comparatively fast economic recovery in Southern Europe has also been a pleasant surprise. For instance, the Spanish economy is currently developing faster than the German or Baltic economies. Italy has also exited recession, and even Greece's GDP data are positive, regardless of the economic and political situation. Germany's data are particularly hopeful, as the German exporters previously relied on the Russian and Chinese markets, said Mauricas.

As for the global economic situation, Mauricas said that the economy of China, based on increasing investment and export volumes, was not sustainable. He noted the increasing construction volumes in China, fueled by bank loans. The Baltic countries were going through a similar development scenario ten years ago. China is losing its international competitiveness, taking into consideration its strong currency and rapidly growing wages. Therefore China's decision to devalue the currency was no surprise. Nevertheless, consumption in China is still way behind consumption in the United States and the EU.

In Mauricas' opinion, the situation in China does not pose a major threat to the global financial system. What is now happening in China rather resembles the economic crisis of the 1990s, not the 2008 crisis. In this scenario, companies exporting goods to China and countries that have close trade and investment relations with China stand to lose the most, he said.