Eastern European Outlook: Export-driven growth ...

Economic conditions in Eastern Europe (including "Central Europe") will
strengthen in 2011-2012, although fiscal policies will be tightened moderately
in many countries and global growth will level out. Strong, competitive exports
will remain a key driving force this year. Meanwhile consumption and capital
spending are awakening from their crisis-period hibernation and will help
sustain good GDP growth. Eastern Europe was the region of the world hardest hit
by the global credit crisis, mainly due to relatively large borrowing in foreign
currencies, writes SEB in its March 2011 issue of Eastern European Outlook.

The first signs of recovery in private consumption came in 2010, alongside a
rebound in real wage growth, stabilising labour markets and some thawing in
frozen credit conditions. Looking ahead, continued decline in unemployment,
faster wage and salary hikes and gradual normalisation in the credit situation
will contribute to growing consumption.

Rapidly accelerating inflation due to sharply higher global energy and food
prices will partly undermine household purchasing power this year. Underlying
inflation pressure is low but is gradually increasing. Looking ahead, the
commodity price upturn will moderate. The increase in broad inflation measures
will culminate this year, except that in Estonia and Lithuania inflation will
continue to accelerate in 2012.

Large public budget deficits in the wake of the crisis will shrink to more
moderate levels in most countries. Estonia's deficit will rise slightly from a
low level. Public sector debts will continue to grow somewhat; they are low or
moderate, compared to many Western countries.

"Painful austerity policies in the Baltics will soon fade away. In our
assessment, these countries' internal devaluations, including sharp pay cuts,
are over. Private wages and salaries have been increasing again since late
2010. Latvia's budget tightening will continue this year, but Lithuania's fiscal
policy will be more neutral. In Estonia we expect fiscal policy to be
expansionary. Budgetary challenges still remain, however. Latvia and Lithuania
are still running large budget deficits, and their governments' ambition to
bring the deficit down to a maximum of 3 per cent of GDP in 2012 to prepare the
way for euro zone accession in 2014 is in danger. Some further tightening may be
required in Lithuania," says Mikael Johansson, Head of Eastern Europe Research
and Chief Editor of Eastern European Outlook.

SEB's GDP forecasts for 2011-2012 will remain somewhat above consensus, except
in Ukraine:

  * Russia's GDP will increase by 5.6 and 5.2 per cent, respectively, in
    2011-2012, sustained by high commodity prices. SEB is now raising its Brent
    oil price forecast for 2011 to USD 102/barrel from USD 96/barrel. "Higher
    oil prices will provide an extra growth impulse and room for a continued
    expansionary fiscal policy, although in the short term there is increased
    uncertainty about consumption due to rapidly rising inflation," notes
    Andreas Johnson, Russia analyst at SEB Economic Research, who predicts that
    the central bank will continue to tighten monetary policy and that the
    rouble will appreciate further.

  * Poland's growth will become more investment-driven, rising to 4.5 and 4.6
    per cent. "An expansionary fiscal policy sustained demand during the crisis,
    with large budget deficits as a consequence. Further fiscal tightening will
    be needed after the autumn parliamentary election in order to meet
    nationally established debt limits," according to Daniel Bergvall, Poland
    analyst at SEB Economic Research, who predicts that the key interest rate
    will continue to be raised and that the zloty will appreciate.

  * Ukraine's growth will improve slightly to 4.7 per cent this year. Favourable
    world market prices for steel and agricultural products, two major export
    industries, will provide support but austerity requirements imposed by
    Ukraine's lender, the IMF, will restrain growth.

  * Estonia's GDP increase will accelerate to 5.0 and 4.5 per cent,
    respectively, in 2011-2012. The export boom is continuing, while domestic
    demand is gradually picking up. An unexpectedly rapid labour market
    improvement will help fuel consumption. Austerity policies have eased.

  * Lithuania's growth will surge to 4.0 and 4.5 per cent in 2011 and 2012.
    Exports will continue to drive growth, which will nevertheless become more
    broad-based as fiscal tightening softens this year. Emigration and growing
    labour shortages will hamper the upturn.

  * Latvia, whose upturn is lagging behind Estonia and Lithuania, will see GDP
    growth pick up to 4.0 per cent in 2011 and 4.5 per cent next year, but the
    domestic economic recovery will be shaky. This is partly because public
    budget consolidation is continuing.


 For further information, please    Press contact:
contact:                            Elisabeth Lennhede,  Press & PR, mobile
                                    +46 70 763 99 16
Mikael Johansson, Head of Eastern   [e-mail]
Europe Research, SEB Economic
Research, mobile +46 70 372 28 26   Ola Kallemur, Press Officer, tel.
                                    [phone], mobile [phone]
Daniel Bergvall, SEB Economic
Research, mobile [phone]

Andreas Johnson, SEB Economic
Research, mobile [phone]


SEB is a leading Nordic financial services group. As a relationship bank, SEB in
Sweden and the Baltic countries offers financial advice and a wide range of
financial services. In Denmark, Finland, Norway and Germany the bank's
operations have a strong focus on corporate and investment banking based on a
full-service offering to corporate and institutional clients. The international
nature of SEB's business is reflected in its presence in 20 countries worldwide.
On December 31, 2010, the Group's total assets amounted to SEK 2,180 billion.
while its assets under management totalled SEK 1,399 billion. The Group has
about 17,000 employees, excluding its retail banking operations in Germany. Read
more about SEB at www.sebgroup.com.



Eastern European Outlook Economic Research – March 2011: 


http://hugin.info/1208/R/1499303/434835.pdf

Press release (PDF): 


http://hugin.info/1208/R/1499303/434834.pdf

Mikael Johansson: 


http://hugin.info/1208/R/1499303/434836.jpg




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