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A New Model for Balanced Growth and Convergence

A New Model for Balanced Growth and Convergence

Achieving Economic Sustainability in CESEE Countries

Edited by Ewald Nowotny, Peter Mooslechner and Doris Ritzberger-Grünwald

This topical book addresses the need for emerging economies in Central, Eastern and South-Eastern Europe to find a new, sustainable growth model that fosters continued convergence with the EU without leading to the build-up of new vulnerabilities.

Chapter 12: Economic adjustment in the Baltic countries

Ardo Hansson and Martti Randveer

Subjects: economics and finance, financial economics and regulation, international economics, money and banking


Prior to the global financial crisis that emerged in 2008, Estonia, Latvia and Lithuania experienced several years of strong economic growth, followed by one of the deepest recessions in the world in 2008–2009. In a historical context, the cumulative output loss in the Baltic countries was almost twice as large as the gross domestic product (GDP) decline in the hardest-hit countries during the Asian crisis in 1997–1998. As compared to the euro area debt crisis, only the expected output loss in Greece is comparable to the GDP decline in the Baltics. In the other euro area countries, the recession in terms of a cumulative decline in output has been less pronounced. After a severe recession, the Baltics have witnessed a relatively speedy recovery. As a result these countries have regained a significant part of the initial output losses and have seen a fall in unemployment levels. A swift reduction in several pre-existing imbalances and vulnerabilities was another prominent feature of the adjustment in the Baltics.

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