Baltic States - Economies

Economies

Estonia, Latvia, and Lithuania have been members of both the European Union and the North Atlantic Treaty Organization since 2004. Today the three countries are liberal democracies and their market economies in recent years have undergone rapid expansion in early 2000s (decade). However, the economies were hard-hit by the financial crisis of 2007–2010. According to projections by the International Monetary Fund (IMF), the GDP based on purchasing-power-parity decreased by 13% to 17% from 2008 to 2009.

The Baltic states had the highest growth rates in Europe between 2000 and 2006, and this continued in 2007. In 2006 the economy in Estonia grew by 11.2% in gross domestic product, while the Latvian economy grew by 11.9% and Lithuania by 7.5%. All three countries saw their rates of unemployment fall below the EU average by February 2006. Additionally, Estonia is among the ten most liberal economies in the world and in 2006 switched from being classified as an upper-middle income economy to a high-income economy by the World Bank. Estonia adopted the euro in January 2011 whilst Latvia and Lithuania do not have a specified date, but Lithuania hopes to do the same in the following years and Latvia in 2014.

However, due to the global economic crisis, the Baltic economies in 2008 were fragile and the previous fast growth had switched to recession in Estonia and Latvia by the end of 2008, followed by Lithuania in 2009.

In 2009, unemployment rate rose to 13.7% in Lithuania, 17.3% in Latvia and 13.8% in Estonia, as compared to a "Advanced Europe" level of 8.8% (the 2009 unemployment rate in so called "Emerging Europe" countries was higher but still below that found in the Baltic states). Over the course of 2011, the unemployment rates are expected to rise even further, despite an expected recovery in output.

In 2009, real aggregate GDP fell by 14.8% in Lithuania, by 18% in Latvia and 13.9% in Estonia, compared to an overall fall of 3.7% among all countries in the "Emerging Europe" group. Output is expected to recover somewhat in Lithuania and Estonia, with projected growth rates of 1.3% and 1.8% respectively, while in Latvia GDP is expected to fall by further 1%.

Although Estonia has so far succeeded on keeping its debt-levels one of the lowest in the European Union, the southern Baltic states are in a more difficult situation. Rather defaulting on debt in the lead-up to the sub-prime mortgage crash, the Latvian government has responded to EU and IMF pressure by taking on private debt. Latvia accepted a 7.5 billion euro EU-IMF loan.