Baltics Outlook | Gloomy year followed by strong rebound
COVID-19 to weigh on performance of Baltics this year. Worsening prospects for EU will drag foreign demand down, while deteriorating sentiment and declining incomes will push domestic demand into red. Strong recovery next year will depend on rebound in EU.
The outlook for this year has changed significantly for the Baltics with the spread of COVID-19 around the globe. Given the broad-based nature of the crisis, the Baltics will go into a deep recession this year. Unlike in 2009, when the Baltics were hit considerably worse than the CEE region, the COVID-19 crisis will have similar impact on all economies. According to the European Commission Spring Economic forecast, Estonia will contract by -6.9%, Latvia by -7.0% and Lithuania by -7.9%.
The Baltics are expected to rebound strongly next year once activity resumes across all sectors. However, the rebound will be closely tied to the speed of recovery in the EU as a whole, given the high openness of all three countries. To mitigate some of the negative economic effects of the introduced containment measures, local governments have proposed fiscal stimulus packages.
Before the outbreak of COVID-19, S&P changed the Estonian rating outlook to positive, while Latvia and Lithuania have been upgraded to ‘A+’ with stable outlook. The latter has also been upgraded by Fitch to ‘A’ with stable outlook. The deterioration of the economic outlook resulted in the revision of Latvian outlook to negative from stable by Fitch on April 10.