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2021/02/12 / Erste Group Research

Baltics Outlook | Recovery to begin in second half of 2021

Baltics benefited from more relaxed measures and weathered pandemic crisis in relatively good shape. Lithuanian GDP contracted by ‘just’ -0.9%, Latvian by -3.5% in 2020. Start of 2021 looks bumpy and region should rebound more visibly in second half of year.

Although the introduced containment measures are not as strict as in the CEE region, they will drag the recovery down in 1H21 and a more visible rebound is expected only toward the second half of the year. According to the European Commission’s Winter forecast, FY21 GDP growth is expected to land at 2.6% in Estonia, 3.5% in Latvia and 2.2% in Lithuania.

Inflation remained subdued across the Baltics in 2020, primarily due to a fall in fuel and energy prices as well as weak demand pressure. In fact, Estonia recorded one of the most severe deflations in the EA last year, as demand-side factors were amplified by the reduction of excise duties on diesel fuels introduced in May 2020 for two years. The beginning of 2021 should still be characterized with deflationary pressure in the Baltics. The European Commission sees HICP inflation in 2021 at 1.2% in Estonia (up from -0.6% in 2020), 1.5% in Latvia (up from 0.1%) and 1.7% in Lithuania (up from 1.1%).

As an aftermath to the Global Financial Crisis, unemployment increased dramatically in the Baltics. It took almost a decade for the unemployment rate to return to the level observed in 2008 in Estonia and Latvia, while in Lithuania the unemployment rate was still above the 2008 level in 4Q19. Although the labor market suffered from COVID-19 restrictions, the deterioration was much milder compared to the GFC shock. As restrictions are likely to stay in place in some sectors this year, the unemployment rate is expected to remain unchanged or decrease only marginally in the Baltics. A more visible improvement is expected only in 2022.

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General information

AuthorErste Group Research
Product nameCEE Economies Special Report
Topic in focusFX, Macro/ Fixed income
Economy in focus-
Currency in focus-
Sector in focus-


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