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2015-03-25

SEB: Eastern European Outlook, March 2015: Baltics and Central Europe resilient to Ukraine conflict and Russian recession

The Baltic countries and Central Europe are continuing to show good resilience
to the Russia-Ukraine conflict as well as Russia's food import sanctions and
accentuated economic weakness. This is mainly because of favourable economic
conditions, including strong real household incomes (especially in the
Baltics) that are allowing robust private consumption. Looking ahead, the
prospect of improving exports to Germany will also provide support. But
overall growth rates will be modest during the next couple of years as
exports to Russia fall and weak business investments strengthen only slowly
due to geopolitical turmoil in the region, writes SEB in the latest issue of
its twice-yearlyEastern European Outlook
.

As in the rest of Europe, inflation will remain very low in the Baltics and
Central Europe, especially due to low energy prices. In Estonia, however,
inflation will rebound relatively fast as a result of an increasingly tight
labour market, with continued emigration contributing to increased labour
shortages and continued high wage and salary growth. All three Baltic
countries are struggling with emigration problems and underlying weak
demographic trends.

SEB still expects the Russia-Ukraine conflict to be long-lasting and the
ceasefire to be fragile.

"Sanctions policies are increasingly difficult to assess. This is because of a
trend towards widening divisions within the European Union on a unified
stance towards Russia, both for national economic and political reasons. Our
main scenario is that Western sanctions will remain in place at least during
2015," saysMikael Johansson
, Head of Eastern European Research at SEB and Chief Editor ofEastern European
Outlook
.

Russia is moving towards a large GDP decline this year due to the oil price
downturn, the rouble-driven inflation shock and continued Western financial
sanctions. Strong government financial reserves will provide protection over
the next couple of years. But these reserves are meanwhile being drained and
the Russian economy - already plagued by major structural problems - will be
in far more fragile condition when it emerges from recession in 2017.

"Support for President Vladimir Putin remains strong, driven by his handling
of Ukraine and his aggressive stance towards the West. Meanwhile the
opposition has weakened greatly in recent years and will have difficulty
organising in time for the 2016 parliamentary election, so there is little
domestic political risk during the next couple of years," saysAndreas Johnson
, who is in charge of Russia and Ukraine forecasts at SEB Economic Research.

Ukraine is in an acute economic crisis, with nearly empty central bank
reserves. The recently approved expansion of international bail-out loans and
a coming debt write-down by private bond holders will enable the country to
avoid default.

Here are the GDP forecasts for the six countries thatEastern European Outlook
covers. SEB's forecasts for 2015 and 2016 are generally somewhat below
consensus.

* Russia's GDP will fall by 5.0 per cent in 2015 and by 1.0 per cent in 2016.
A slight oil price upturn will help stabilise the economy. The rouble is
vulnerable but will gradually regain strength.
* Ukraine will see a continued GDP decline this year, totalling 6.0 per cent.
The country's falling currency - which will turn around and show a slight
appreciation - will contribute to weak export-driven growth of 1.0 per cent
in 2016.
* Poland , with relatively solid fundamentals, will experience GDP growth of
3.4 per cent this year and 3.6 per cent in 2016, making it the
fastest-growing economy in Central and Eastern Europe. The negative impact
of Swiss franc appreciation on many Polish home mortgage loans will be
relatively minor.
* Estonia's strongly export-oriented economy is slowly working its way out of
a relatively deep 2013-2014 growth slump. GDP will rise by 2.2 per cent
this year and 2.7 per cent in 2016.
* Latvia will see unchanged 2.4 per cent growth this year, following by an
acceleration to 2.7 per cent in 2016. The approaching presidential election
may lead to political instability, but the economy is robust.
* Lithuania's growth will slow a bit this year, to 2.6 per cent, but
accelerate to a solid 3.5 per cent in 2016. The important energy sector
will achieve a more secure situation, helped by a new liquefied natural gas
terminal and electric power links that will radically decrease the
country's dependence on imported Russian energy.

----------------------------------------------------------------------------------------
| For further information, please contact Press contact |
| |
| |
|Mikael Johansson, Head of Eastern European Research, Anna Helsén, Group Press officer |
|SEB Economic Research +46 8 763 9947, + 46 70 698 4858 |
|+46 8 763 8093, +46 70 372 2826 anna.helsen@seb.se |
|mikael.johansson@seb.se |
| |
| |
|Andreas Johnson, SEB Economic Research |
|+46 8 763 3082, +46 73 523 7725 |
|andreas.johnson@seb.se |
----------------------------------------------------------------------------------------
SEB is a leading Nordic financial services group. As a relationship bank, SEB
in Sweden and the Baltic countries offers financial advice and a wide range
of financial services. In Denmark, Finland, Norway and Germany the bank's
operations have a strong focus on corporate and investment banking based on a
full-service offering to corporate and institutional clients. The
international nature of SEB's business is reflected in its presence in some
20 countries worldwide. On December 31, 2014, the Group's total assets
amounted to SEK 2,641 billion while its assets under management totalled SEK
1,708 billion. The Group has about 16,000 employees. Read more about SEB
atwww.sebgroup.com

Eastern European Outlook, March 2015
http://hugin.info/1208/R/1906041/678482.pdf
Press release (PDF)
http://hugin.info/1208/R/1906041/678480.pdf

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This announcement is distributed by NASDAQ OMX Corporate Solutions on behalf of NASDAQ OMX Corporate Solutions clients.
The issuer of this announcement warrants that they are solely responsible for the content, accuracy and originality of the information contained therein.
Source: SEB via Globenewswire

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