In the baltics people don’t trust banks and banks don’t trust customers

Financial Times published today that Lithuania faces a sharp contraction of economic growth next year, but is determined not to follow the example of Hungary and Latvia and turn to international institutions for emergency help. As Lithuania's incoming prime minister said on Thursday, "The economic and financial situation in the three Baltic states is becoming really quite difficult. Kubilius predicts a 1.5 per cent drop in Lithuania's gross domestic product next year. His government would aim for a budget deficit next year of about 0.6 or 0.7 per cent of gross domestic product.

The global credit crisis is forcing a rapid economic slowdown in the ex-communist states of central and eastern Europe, particularly in countries dependent on international financial flows, says the European Bank for Reconstruction and Development.

The worst performance is expected in the Baltic states, with recession in Estonia and Latvia next year. Bank clients and policymakers remain nervous. "People don't trust banks and banks don't trust customers," said Mr Spredzis, manager of Skandi Auto (which operates four showrooms selling Mitsubishi, Hyundai and Bentley models) to FT. Andrius Kubilius, the Lithuanian premier-elect, said this week that he was "sitting on a ticking time-bomb". In Estonia layoffs have hit white-collars as well, when there was slightly more than 2,500 unemployed in this category a year ago, then today the number has nearly doubled, ERR News reports. Nearly fifth of 25,000 unemployed are highly educated, wrote Marge Tubalkain-Trell in BalticBusinessNews.

Central Europe and the Baltic states as a whole are predicted to see growth almost halve from 4.3 per cent in 2008 to 2.2 per cent. In south-east Europe the forecast fall is even greater, from 6.5 per cent to 3.1 per cent. In Poland, the second biggest economy after Russia, the EBRD predicts a decline from 5.3 per cent to 2.8 per cent.