EU Economic Sentiment Index For the Baltic Countries

Economic confidence across the eurozone is eroding rapidly, with increasing signs that the growth slowdown is hitting the region’s labour market, a closely-watched survey has shown.

The European Commission’s eurozone “economic sentiment” index has fallen sharply from 99.6 in March to 97.1 in April – the lowest level since August 2005. With the indicator regarded as good guide to growth trends, the unexpectedly steep decline pointed to a marked deceleration in economic activity.




The latest data could fuel speculation that the European Central Bank will cut interest rates later this year. Eurozone inflation data showed eurozone prices rising at an annual rate of 3.3 per cent this month – down from 3.6 per cent in March – suggesting that the worse may be over in terms of price pressures.


If we turn to the Baltic countries we can see that Latvia and Lithuania continue their steady downward course, while Estonia begins to decline again after a few months of seemingly marking time. The deterioration in Estonian sentiment in April is pretty consistent I would say with the other data we have been receiving lately, like the industrial output for March.




Basically I think the Baltic countries should pay attention to what is happening across the rest of the EU , and in particular to the eurozone (although the UK economy is also clearly losing speed fast). The fortune of these countries is now of particular interest to Baltic citizens since the Baltic economies are now all export dependent given the boom bust cycle which domestic demand has just passed through. So really now what happens to your potential customers really does matter to you.




As can be seen from the above chart, Italy's economy continues - like Venice - to sink steadily, while the two eurozone economies which had the strongest housing booms - Spain and Ireland - head steadily off the cliff, with Spain having poll position, and by quite a long margin. My basic guess is that the mechanism for a slowdown in central and eastern europe will operate through Germany. basically the German economy is very heavily dependent on exports, and German GDP growth is now very sensitive to export volume growth. The slowdown in the UK, Italy and Spain - which are all important German customers will in all likelihood have a significant negative impact on the German industrial output dynamic, and we saw an indication of this in the relatively weak employment growth in April in Germany. Since most of the CEE is locked into the German economy quite strongly this loss of momentum in the German economy will be felt across the zone, and in a sort of negative lose-lose dynamic this impact on output in the CEE will work its way back home to Germany again. That is to say I would be expecting to see quite a significant slowdown in Germany in the second half of 2008.