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Baltic Countries Continue To Struggle

Written by A Forex View From Afar on Tuesday, June 02, 2009

Even though it seems the global economy is on its way towards recovery, overall, not every country is enjoying the comeback.

In the European Union, the Baltic country of Latvia is enduring a very tough period. The economy contracted a whopping 18% in the first quarter from one year earlier (in nominal terms), while TheLFB-Forex.com Trade Team expects the GDP to shed a quarter of its value by the end of the credit crisis. The unemployment rate surged to 17.4% in April, from 6.1% one year earlier. By every standard, the Latvian economy is in terrible shape. TheLFB-Forex.com Trade Team argues that the economic contraction is even greater than the one experienced by the U.S. during the Great Depression.

However, things have not been always like this. For years, the three Baltic States (Latvia, Estonia and Lithuania) had the strongest growth rate among the developed economies, especially Latvia, which averaged double digit expansions during the 2005-2007 periods. As a consequence, the three countries came to be known as the Baltic Tiger.

However, it all came to an end during the credit crisis as the huge current account deficit, (bigger than 20% of the economy) net outflows of cash and double digit inflation choked every small attempt of economic recovery, TheLFB-Forex.com Trade Team noted.

These days, a growing number of economists, including the IMF, say that Latvia should devalue its currency. This would send the Latvian Lat much lower against the dollar and the euro as the central bank tries to inject money into the real economy.

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