OREANDA-NEWS. May 16, 2012. This year, exports in the Baltic States will remain weak, with investments decreasing; however, growth in consumption will continue, supported by stronger real salaries and other factors, states SEB Nordic Outlook, published. SEB continues to forecast that Estonia’s economic growth in 2012 will be 1.5 per cent, which may actually prove higher, with inflation at four per cent this year and five per cent next year, reported the press-centre of SEB.

SEB Nordic Outlook notes that, recently, there has been no clear direction in the world economy. The liquidity facility provided by the European Central Bank in late 2011 marked the beginning of a wave of relaxation in economic policy. Subsequently, investors’ inclination to take risks increased, and Q1 2012 was dominated by the optimism of consumers and businesses; however, in recent months renewed concerns have surfaced yet again.

The deepening crisis in Spain has highlighted anew the serious risks and challenges that the euro zone has to tackle. News about the economy in the United States has also been mixed, with negative news dominating. At the same time, concerns over the potential rough landing of China have eased, and the developing economies are keeping up a fairly rapid pace of growth.

In spite of the drama that has often featured in the world economy recently, SEB’s scenario has not changed, for the most part, compared to the February Nordic Outlook. This time, we have raised the prospects on the world economy slightly: in the United States, we are expecting economic growth around the trend rate: 2.5 per cent in 2012 and 2.7 per cent in 2013.

Euro zone: Germany’s economy strong, but a deep decline in Southern Europe

In Q4 2011, the euro zone slipped into a recession, and SEB forecasts that negative growth will continue in the first half of 2012. Altogether, GDP for the whole year will decrease by 0.6 per cent. Germany’s economy is withstanding this trend better than expected; however, the recession in Southern Europe is going to be deep.

In many important respects, economic developments have been following our most recent forecasts. For a long time, SEB’s main scenario has been that growth will be weak: growth is not sustainable by itself, instead requiring continued stimulation. In many countries, economic growth is limited due to the continuing need to consolidate debt. The crisis in Spain, too, may have contagious effects.

Lower external demand is putting pressure on the Nordic countries and the Baltic States

Lower external demand is also putting a damper on economic growth in the small and export-oriented Nordic economies. This year, the GDP growth rate will reach nearly half a per cent in Denmark, Finland and Sweden. Their direct linkage to Southern Europe is limited; however, since growth is also declining in Germany, the impacts on exports will be far-reaching. Along with an improvement in external demand in late 2012, the Nordic economies will recover, too; however, their growth will also remain below the trend in 2013, reaching approximately two per cent.

This year, exports in the Baltic States will remain weak, with growth in investments decreasing; however, growth in consumption will continue, supported by stronger real salaries and other factors. In more general terms, consumption has been held back during and after the crisis, which is fuelling its recovery. In 2012, we expect weak economic growth in the Baltic States, ranging from 1.5 to 3.0 per cent, followed by somewhat faster growth in 2013. SEB forecasts that Estonia’s economic growth in 2012 will remain 1.5 per cent, which may actually prove higher, with inflation at four per cent this year and five per cent next year.