Riga - Three tiny post-communist countries earned the
nickname Baltic Tigers with years of spectacular economic growth that
made them the envy of the European Union's old economies.
But Monday brought new evidence that Estonia and Latvia risk
recession amid a worldwide credit crunch and plummeting domestic
demand, while Lithuania also faces economic woes.
Estonia's gross domestic product (GDP) shrank 1.1 per cent
year-on-year in the second quarter of 2008, down from growth of 0.2
per cent in the previous quarter, Statistics Estonia said in revised
figures.
Latvia's economy grew by 0.1 per cent in the second quarter, down
from 3.6 per cent in the previous three-month period, the office of
statistics said in second estimates on Monday.
Once part of the fastest-growing economy in the European Union,
Latvians now face a gruelling winter of rising heating costs and a
shrinking labour market.
'This will be the year when each Latvian resident will suffer from
the economic crisis and there will not be the privileged ones who
will suffer less,' Latvian President Valdis Zatlers told LNT TV
Monday morning.
Major employers say Latvians are now less likely to demand higher
wages, and less frequently change jobs in the volatile economy.
'People more seriously evaluate why they want to change a job and
whether this is the right time to do it,' human resources manager at
Latvia's largest bank Hansabanka Kristine Sneidere told a daily
newspaper recently.
That is likely to dampen Latvia's high annual inflation which ran
at 15.7 per cent in August, compared to 17.7 per cent in May,
according to the statistics bureau.
The central bank of Latvia has forecast growth this year will be
between 2.5 and 3 per cent, though commercial bank forecasts are
lower.
SEB bank sees growth this year at zero to 0.5 per cent, while
Nordea expects an economic contraction of 0.4 per cent this year and
0.7 per cent next year.
Not everything is doom and gloom for the Baltics. Latvia's
current account deficit, once the largest in the European Union, has
been shrinking.
'The government has been forced to question the effectiveness of
the budgetary spending, to revise the employment figures in the
public sector and to listen to the advice from the business
community,' SEB economist Andris Vilks said in a research note.
A slowing economy and dwindling revenues are confronting Baltic
governments with tough choices when they present their budgets to
their parliaments later this month.
The Latvian government last week decided to freeze wages for state
employees, putting it under pressure from unions. Unions of police
employees and doctors are planning to stage one-day warning strikes
this month.
International investors pulled their funds out of the Baltic
market about one year ago, said Kestutis Celiesius, head of the
brokerage unit for Danske Bank in Lithuania. As a result all major
Baltic stock exchange indexes have lost 30-40 per cent in a year, he
said.
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