Page 22 - CE Outlook Regions 2024

2.2 Macroeconomy - Baltic states
The aftermath of the global COVID-19 pandemic, supply-chain disruptions, war in Ukraine, high inflation throughout 2023, and the twin climate and energy crises will continue in 2024 to affect the economies of the Baltic states, however the outlook is expected to get better as the year progresses.
The region will continue seeing a reduction in economic activities and a waning external demand amid the tense geopolitical situation.
The EBRD expects that in the Baltic states – where high costs for food and energy tightened households’ budgets and small and medium-sized enterprises’ access to finance for investment will be reduced – growth will be 2.5% in 2024.
The International Monetary Fund (IMF) forecast economic growth in all three Baltic states (2.9% for Lithuania, 2.7% percent for Latvia and 1.9% in Estonia) in 2024, however, in reality, growth is very likely to be lower due to the war and, especially if Russia makes advances in Ukraine, which is plausible ahead of the presidential election in Russia in 2024.
As a fallout from the war, Baltic citizens’ purchasing power and consumption will remain constrained in 2024. Meanwhile, the decreased activity of several sectors, such as manufacturing and agriculture, commercial banks’ tighter credit standards and weaker demand for credits will be among the other factors affecting the Baltic population’s purchasing power and mood.
Due to the war, economic sentiment in the Baltics is gloomy, with many businesses in preservation mode, not willing to invest and expand.
Inflation will nearly certainly stay in single digits in the Baltics throughout 2024. Inflation has been receding in all the three Baltic states before the start of 2024 and the edging down is expected to remain.
The European Central Bank has responded aggressively to tackle the rampant inflation, increasing interest rates, which impacted the banking sector mostly – real estate sales have hit all-time lows.
Another important factor will be the slowdown in major euro area economies, which is reducing demand for exports.
Baltic imports and exports were edging down at the end of 2023 and the numbers cannot be expected to see any significant improvement in the first half of 2024.
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