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2015-10-07

SEB: Eastern European Outlook, October 2015: Economic picture remains divided - Russian recession in 2016 too

The dual-track economic picture in Eastern (including Central) Europe will
persist over the next two years. Conflict-plagued Russia and Ukraine will
show continued weakness. In Russia, recession will linger during 2016 too, as
plunging oil prices rebound only weakly and sanctions against the country by
the European Union and United States are probably extended, though softened
slightly. Meanwhile the Baltic countries, Central Europe and to some extent
the south-eastern portion of Eastern Europe will continue to show decent
economic growth, primarily sustained by growing domestic demand. Poland and
the Czech Republic will lead the way, writes SEB in the latest issue of its
twice-yearly reportEastern European Outlook
.

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

The conflict has eased this autumn, but the various military and political
promises made by the parties to the Minsk 2 agreement will be difficult to
fulfil in their entirety by the December 31, 2015 deadline.

"Our main scenario is that at its January 2016 summit, the EU will extend its
sanctions against Russia for a certain period of 2016, although it may soften
them slightly. We believe that the US - which has been more strident than the
EU about linking its sanctions to a condemnation of Russia's annexation of
Crimea - will stick to its sanctions at least throughout 2016. Russia, which
has already responded to the EU and US by extending its import ban on foods
until next summer, will be the biggest loser in the war of sanctions, in our
assessment,"
says Mikael Johansson, Head of Eastern European Research at SEB and Chief
Editor ofEastern European Outlook
.

Good conditions for households are the main reason why the Baltics and Central
Europe will continue to show good resilience to the Russia-Ukraine conflict
and economic weakness in those countries. Strong real incomes, increasing
employment and only cautiously rising low interest rates will lead to good
consumption growth. Capital spending activity, which has been relatively
sluggish so far, will increase but remain hampered by nearby geopolitical
worries. Modest export growth will gradually strengthen, due to increased
demand from Germany (which weighs especially heavily for Central Europe) and
the Nordic countries (relatively important markets for the Baltics). The
Baltics will be harder hit than Central Europe by Russia's economic downturn
and food import sanctions, because of their larger foreign trade exposure to
Russia.

The inflation picture in Eastern Europe will also remain divided. High
inflation in Ukraine and Russia, driven by earlier currency depreciation, has
largely culminated in recent months and will gradually continue downward. In
most other Eastern European economies, inflation is under strong pressure as
in the West but is past its low point or is about to hit bottom. Inflation
will climb only weakly as a consequence of relatively rapid pay growth.
Continued low commodity prices will have a restraining effect.

Here are our 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 continue its decline in 2016 but the downturn will ease
to 1.0 per cent from this year's 4 per cent. Growth will be slowed by low
oil prices, sanctions and structural problems. In 2017 as well as in the
long term, we expect growth to reach a low 1.5 per cent.

"Without far-reaching reforms that address such problems as Russia's poor business climate, weak capital spending and heavy dependence on oil exports, there are risks that economic growth will be very weak in the future as well,"
says Andreas Johnson, who is in charge of Russia and Ukraine forecasts at SEB Economic Research.

* Ukraine will see yet another sharp GDP decline this year, 12 per cent, and
then experience weak growth in 2016-2017. The country's recent debt
write-down agreement with private lenders and on IMF bail-out loans will
contribute to stabilisation.
* Poland will see stable growth, accelerating a bit to 3.6 per cent in 2016
and 3.8 per cent in 2017. We expect a change of government after this
autumn's parliamentary election. There are clear political dividing lines
between the current government and its likely successor, but the growth
picture will not change appreciably.
* Estonia 's 2015 growth forecast has been written down a few tenths of a
point due to weak exports, but growth will rebound - sustained primarily by
a consumption boom and strong demand from Sweden and elsewhere. GDP will
increase by 2.7 per cent in 2016 and 3.4 per cent in 2017.
* Latvia will be the fastest-growing Baltic country. GDP will climb by 2.7
per cent next year and 3.5 per cent in 2017, but the latter is only a bit
above potential growth.
* Lithuania will experience leisurely growth this year, slowed by Russian
effects but also by low prices that have hurt the country's important
refined oil exports. Growth will accelerate to a decent 3 per cent or so
annually during 2016-2017.

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| 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 June 30, 2015, the Group's total assets amounted
to SEK 2,760 billion while its assets under management totalled SEK 1,780
billion. The Group has about 16,000 employees. Read more about SEB
atwww.sebgroup.com

Press release (PDF)
http://hugin.info/1208/R/1957166/712990.pdf
Eastern European Outlook, October 2015
http://hugin.info/1208/R/1957166/712992.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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