Baltic Economies Face Mixed Fortunes Amidst Global Uncertainty
The OECD has released its latest economic outlook for the Baltic states, painting a picture of cautious growth tempered by uncertainties in the global economy.
Latvia: Steady Growth Predicted, Geopolitical Risks Loom
Latvia’s economy is expected to grow by a modest 1.9% next year, with a further acceleration to 2.5% predicted for 2026. These projections follow earlier estimates by the OECD in May, forecasting GDP increases of 1.8% and 2.9% for this year and next year, respectively.
Inflation is expected to remain relatively contained, with the consumer price index set to rise by 1.2% this year, 2% in 2024, and 2.1% in 2026. Unemployment, currently at 6.9%, is projected to gradually decline to 6.7% next year and 6.6% in 2026.
The OECD suggests that low inflation and steady wage growth will contribute to increased purchasing power for Latvian consumers. In addition, the acquisition of European Union funds should bolster public investment, while lower interest rates will likely encourage both business and housing investments. With the recovery of key export markets, Latvia’s external trade sector is also expected to perform well.
However, geopolitical tensions and global economic instability present significant challenges. “Core inflation will remain high due to a strong increase in wages due to the shortage of workers and the large increase in wages in the public sector,” warns the OECD. “In addition, the growing geopolitical risks could hinder the growth of Latvia’s economy.”
Estonia: Recession in 2023, Followed by Modest Recovery
Estonia is braced for an economic contraction this year, with the OECD forecasting a 0.9% decline in GDP. A cautious recovery is projected for the following years, with growth rates of 1.7% and 2.7% expected in 2024 and 2026, respectively.
Consumer prices are set to rise by 3.4% this year, followed by further increases of 3.8% in 2024 and 2.8% in 2026. Unemployment is predicted to stand at 7.4% in 2023, decreasing slightly to 7.3% in 2024 and then to 6.7% in 2026.
Lithuania: Growth on Track, Inflation Under Control
The OECD anticipates a robust GDP growth rate of 2.4% for Lithuania in 2023, with further acceleration to 3.1% in 2024 and 2.8% in 2026. Consumer prices are projected to increase moderately, rising by 0.9% this year, 2.3% next year, and 2.4% in 2026. Unemployment is forecast at 7.4% in 2023, declining to 6.9% in 2024 and 6.3% in 2026.
What specific strategies are the Baltic states employing to navigate geopolitical risks and global economic uncertainty?
## Interview: Baltic Economies Navigate Turbulent Waters
**Host:** Welcome back to the show. Today we’re discussing the latest economic outlook for the Baltic states, a region facing both growth opportunities and geopolitical headwinds. Joining us is Dr. Anna Petrova, an economist specializing in Eastern European markets. Dr. Petrova, thanks for being here.
**Dr. Petrova:** It’s my pleasure to be here.
**Host:** The OECD has just released its latest report, and it paints a picture of cautious optimism for the Baltics. Can you walk us through the key takeaways?
**Dr. Petrova:** Absolutely. The report highlights a region poised for modest but steady growth. Latvia, for instance, is projected to see a 1.9% GDP expansion next year, with this accelerating to 2.5% by 2026. This follows earlier OECD forecasts [[1](https://www2.oecd.org/estonia/balticpartnershipsintegrationgrowthandlocalgovernanceinthebalticsearegion.htm)]. While these figures are encouraging, they are tempered by continued global economic uncertainty.
**Host:** What are some of the major factors influencing this outlook?
**Dr. Petrova:** Several factors are at play. On the one hand, the Baltics have shown resilience in the face of recent global shocks, and there’s strong potential in sectors like IT and renewable energy. However, global inflation, supply chain disruptions, and the ongoing geopolitical situation due to the war in Ukraine
introduce a considerable degree of uncertainty.
**Host:** How is Latvia specifically navigating these challenges?
**Dr. Petrova:** Latvia, like its Baltic neighbors, is actively pursuing diversification strategies to mitigate risks. They’re also focusing on investments in education and innovation to build a more competitive economy.
**Host:** what are the key messages for investors and businesses looking at the Baltic region?
**Dr. Petrova:** The Baltics offer a unique blend of stability, growth potential, and a skilled workforce. While navigating global headwinds is crucial, the fundamental strengths of the region make it an attractive destination for long-term investment.
**Host:** Dr. Petrova, thank you for your insights. The Baltic states are clearly navigating a complex economic landscape, but they seem well-positioned to weather the storm and emerge stronger.
