How Much Will Crisis In Russia Cost Neighbors?

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Exporters in Lithuania, Latvia and Estonia are increasingly worried by the effects of the crisis in Russia on their business.

The euro area’s three newest members are set to suffer the knock-on effects of decreased demand from Russia, and it is predicted that exports will fall by approximately 20% this year. As it stands, exports to Russia make up 4.4% of Lithuania’s total exports, 6.3% of Latvia’s and 5.5% of Estonia’s, writes Andre Fonseca Tatar for Bloomberg.

The effects of Russia’s economic woes

According to a report published by Danske Bank, the value of goods and services headed to Russia is set to decrease by 18-25% for the three Baltic countries. The decline is due to the risk of recession in Russia, as well as the weakened ruble, and looks set to cost the trio around $780 million.

The Bloomberg News surveys published last Friday showed that the Baltic countries have had their growth figures for this year cut by 1.3-1.7% compared to 12 months ago. If we take IMF estimates of the trio’s respective GDPs for 2014, those figures mean that around $1.58 billion in potential economic growth has been lost since the beginning of the Russia-Ukraine crisis at the start of last year.

Economists previously overestimated growth figures for Latvia and Estonia in 2014, and if they fail to meet expectations once again it means that the potential lost growth could be even greater.

Encouraging signs

Although it may sound like doom and gloom, it must be emphasized that the Baltic states have lower debt burdens than the majority of the euro area. Estonia has a debt load of 11% of GDP, nearly 6 times less than Finland. Economists expect them to grow faster than the vast majority of other countries in the shared currency, apart from Ireland and Slovakia.

This is due to the fact that consumer spending grew faster than overall growth last year, as consumer confidence continued to grow. Governments in the region must surely be hoping that consumers keep on buying despite growing concern over the situation in the East.


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