Analytics, Crisis, Economics, Estonia, EU – Baltic States, GDP, Latvia

Latvia and Estonia both experienced smaller contractions in the second quarter of this year, compared to the prior three months, although Lithuania saw a bigger drop, reports LETA.

The improving quarter-on-quarter trend bolstered the argument of those who believe the Baltic economies have bottomed out after suffering the deepest recessions in the European Union this year, the daily writes.

But others pointed to the deteriorating situation in Lithuania and worsening year-on-year data in Estonia to warn it is too soon to say the region has turned a corner.

The tiny Baltic nations have been a flashpoint in the global economic crisis as their credit-fuelled economies have nose-dived after years of rapid growth.

Their plight has attracted attention because of the countries' strategic importance as former Soviet states-turned-European Union members and because of the heavy exposure held by northern European banks to Baltic debt.

Latvia, which agreed a 7.5billion euros rescue package from the International Monetary Fund and EU last year, saw its economy shrink 1.6% on a quarter-on-quarter basis in the latest three-month period, compared with an 11% drop in the prior quarter.

The rate of decline also fell slightly on a year-on-year basis but remained high at 18.2%.

While Latvia showed signs of stabilising, Lithuania's recession has worsened, with second quarter gross domestic product down 12.3% from the previous quarter and 18.2% from a year ago.

The grim data have increased concern that Lithuania may be forced to follow Latvia in seeking international support. But Dalia Grybauskaite, Lithuania's new president, on Thursday reiterated that her country would turn to the IMF only if the situation became ''critical''.

She said the country remained intent on joining the euro by 2015 in spite of its budget deficit forecast to reach 8% of GDP this year – well above the 3% ceiling set for aspirant euro members.

All three Baltic countries are fighting to maintain their prized currency pegs to the euro, amid persistent speculation that they could be forced to devalue.