Page 48 - CE Outlook Regions 2023

3.2.2 Banks

Despite the shock from the war, there have been limited capital outflows
from the three Baltic states following the war, and the corporate sector
remains robust. Baltic banks are well capitalised and businesses
maintain substantial cash reserves.

The Baltic banking system remained stable throughout 2022 despite
the heavy impact of war on the local economies.

3.2.3 Industry

Industrial production was edging down in the Baltics at the end of 2022
and will likely stagnate in the first half of 2023.

Before the war, the medium and long-term manufacturing growth rate
remained relatively fast and growth was becoming not so much related
to the extensive increase of material-intensive production volumes, as
much with the usage of the newest technological processes,
digitisation, process optimisation, etc. Due to the above-mentioned
factors, faster development was expected in the high and medium
technology sectors – chemistry, pharmacy, electronics, etc.

However, the war disrupted the existing supply chains and the new
ones are much farther and costlier. The year of 2023 will be a year of
adaptation for Baltic industries.

Also, the region faces some other work productivity-related challenges,
especially that the rise in wages outpaces Baltic productivity, and the
shift from labour-intensive production to high value-added products is
slower than in Western Europe.

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