The global economy has been struck by a fresh shock. In addition to the drag from higher tariffs and elevated uncertainty during the past year, the outbreak of the war in the Middle East adds strain on economies. Downside risks dominate the outlook, and there is a real risk of a global recession. Economic growth will come under pressure in our home markets as well; however, underlying growth drivers and fiscal strength suggest there remains scope for outperformance in terms of economic growth compared with many other economies.
The Baltic economies were on track towards lower inflation in the coming years. The energy shock will, however, boost inflation in the Baltics – to around 4% in Latvia and Estonia, and close to 5% in Lithuania. While economic growth will be weaker than previously expected, GDP is still projected to expand by around 2% in Latvia and Estonia and by 3% in Lithuania, where growth will be temporarily boosted by withdrawals from the second-pillar pension funds.
