18 | February | 2010 | EconoTwist's

The Baltic countries will remain in recession throughout 2010, analyst at Danske Bank says. The Lithuanian economy may shrink 3% this year, Estonia’s contraction may reach 1.8% and Latvia’s output may drop 4%, according to the Danish bank’s Baltic based economist.

“We’re the most pessimistic about the trends of domestic demand and more conservative than others about export recovery.”

Violeta Klyviene

Danske Bank’s forecasts are the most pessimistic when it comes to the Baltic region who’s going through the biggest declines in European Union. The Lithuanian economy may shrink 3% this year, Estonia’s contraction may reach 1.8% and Latvia’s output may drop 4%, according to the Bank’s Baltic based analyst.

“Uncertainty remains about a sustainable recovery,” Violeta Klyviene, a Vilnius-based economist at Danske Bank, says over the phone to Baltic Business News.

“The most difficult part for the region is over. We’re the most pessimistic about the trends of domestic demand and more conservative than others about export recovery.”

The Lithuanian economy shrank a preliminary 13% in the fourth quarter, while Estonia’s output declined 9.4% and Latvia contracted 17.7% in the same period.

The collapse of a credit-driven boom was exacerbated by the global financial crisis and the three governments introduced austerity measures to curb widening deficits, adding to economic problems.

A recovery in Latvia, an international bailout recipient along with countries including Hungary, Iceland and Romania, which may begin this year, “will be fragile as full-year average growth will remain negative, driven solely by external demand,” the Baltic based economist says.

In Lithuania, “we expect a more sustained export-driven recovery to begin no earlier than in the second half.”

In Estonia, “uncertainties regarding the more optimistic growth scenario still remain high. The key for a better outcome would be a more positive export-oriented industry performance. We don’t have tangible evidence of this as yet.”

Lithuania ceased production at its Soviet-built Ignalina nuclear power plant on December 31th. to fulfill the nation’s promise to the EU before it joined the block.

Prices rose 1.3% in January from the previous month, driven by a 33 percent increase in electricity costs.

“There is a risk that, due to the rise in energy prices we would see a contraction quarter-on-quarter again in the first quarter,” according to Danske Bank.

“An electricity rate hike would undoubtedly hit the industrial sector.”

Source: balticbusinessnews.com