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Baltic Sea Region Report 2012

02-10-2012 10:24

Close-by crisis raises reform pressures in the Baltic Sea Region

  • The Baltic Sea region will be affected by the weaker economy and crisis in the euro zone, and GDP growth rates will increase by a modest 2.2% this year, 2.4% next year before a somewhat stronger global growth yields 2.9% in 2014.

  • Our structural index – the Swedbank Baltic Sea Index – has improved from 7.0 to 7.1. Overall, the region is ranked among the 30% most competitive economies in the world. Tax systems and entrepreneurship are, however, weak, and need further reforms. 

  • The business cycle in Germany has shifted down and GDP is expected to grow by about only 1 % this and next year. Unemployment is so far unchanged, but we expect an increase, which together with the euro zone crisis, will affect the elections to the Bundestag next year.

  • Poland has so far fared relatively well, but the economy is now slowing down. In addition to a weaker external demand, a necessary budget consolidation will dampen GDP growth to about 2.5% this and next year.

  • The Baltic economies still remain in a recovery phase, and although export prospects are weakening, domestic demand is picking up. GDP growth will slow down to 2.5% – 4.0% in 2012, before increasing to 3.5% – 5.5% in 2013 and 2014. Despite impressive reforms so far, further efforts are now required to raise the value added and meet growing competitiveness pressures. 

  • The political developments in both Russia and Ukraine are taking steps backward, and the business sectors are plagued by growing corruption and the erosion of the rule of law. The efforts to reform the economies have weakened, but following the elections there are opportunities for new initiatives. GDP growth is forecast at 4 % for both countries, which is significantly below potential and what is needed to reduce imbalances.

  • Public finances in Finland are strong, but reforms will be necessary to usher in a structural transformation of the private sector. Fiscal policy in Denmark supports domestic demand when export performance falters. In Norway, large investments in the petroleum sector and increasing private consumption drive growth, while at the same time imbalances in the economy are growing.

  • Swedish GDP growth is falling back during the autumn as export demand weakens, before increasing to 1.7% in 2013 and 2.4% in 2014. Large increases in public investments and raised budget appropriations to research and innovation aim at strengthening the long-term growth potential. The main challenge in the short term is to protect competitiveness in the Swedish economy vis-à-vis the rest of the world.

Baltic Sea Region Report 2012

 

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