OREANDA-NEWS. September 01, 2009. An improved outlook for the global economy will brighten the outlook for Nordic exports in the coming months. Still, a turn for the better in unemployment in the Nordic countries is not to be expected until 2010. This is what the Nordea economists conclude in Economic Outlook, reported the press-centre of Nordea.

- We can now see that the spring optimism in financial markets was justified. Many economies around the world have now emerged from the recession, supported by a highly expansionary and to a large extent coordinated economic policy implemented by governments around the world, says Helge J. Pedersen, Global Chief Economist in Nordea.
 
The next big challenge for governments and central banks around the world is to define the appropriate exit strategy away from their current expansionary economic policies. It is crucial to avoid another financial market collapse and a new global economic recession.

The Estonian economy plunged into an ever deeper recession with GDP falling by 16.6% in Q2, as expected. For instance, domestic demand and exports continued to drop sharply in Q2. Despite the steepening contraction the pace of decline accelerated less than in previous quarters. Nevertheless, GDP is likely to decrease by as much as 14% y/y in 2009. We expect GDP to contract further in 2010, but the recession will ease when for instance export demand recovers.
Even if the global upturn proves more rapid than anticipated, domestic demand and investment will remain subdued in the next few years. The economy is expected to turn to growth in 2011, but at a notably weaker pace than in the past few years.

Consumer confidence has risen from its lows, but it still remains at a weak level, which demonstrates the still long and bumpy road to recovery for consumption. Even though the fall in wages dampens consumption, the correction to recent years’ brisk wage growth has been necessary. Rising unemployment and the difficulties on the credit markets will also slow down the recovery in consumption. After the quick deceleration inflation will continue to moderate, with the drop in consumer prices strengthening purchasing power.

Uncertainty about the Latvian economy, its financial conditions and especially the currency has also cast a shadow over Estonia during the summer. Although the risk of devaluation in Latvia has subsided, the neighbouring countries will continue to monitor the situation as devaluation could prove disastrous to the currencies of the other Baltic countries as well.

The government’s support measures, such as the VAT hike and cuts in public sector wages, are aimed at keeping the budget deficit below 3% of GDP, which would enable EMU membership in 2011. However, after the gloomy H1 this goal is becoming increasingly hard to reach, and thus the plans of euro adoption seem to be postponed at least until 2013.