Covid-19 pandemic will cause sharp drops in Baltic economies

The covid-19 pandemic and measures to control the spread of the virus will cause sharp drops in the economies of all three Baltic countries — Latvia, Lithuania and Estonia, according to forecasts by their central banks.

The decline in 2020 gross domestic product (GDP), a key indicator of economic activity, could be 6.5 % in Latvia and as much as 14 % in Estonia and 20.8 % in Lithuania (in a worst-case scenario). All three countries are relatively small, open economies that have been members of the European Union (EU) since 2004, with Estonia adopting the euro in 2011, followed by Latvia and Lithuania in 2014.

The shocking predictions of shrinking economies — the worst since the global crisis of 2008–2009 — have sent governments in Tallinn, Riga and Vilnius rushing to bolster their economies with cash injections, tax breaks, loans and loan guarantees aimed at saving companies from bankruptcy and providing some form of income to workers idled or laid off as commerce grinds to a stop as a result of emergency measures.

The Baltic governments, temporarily freed of EU restraints on spending and borrowing, have allocated billions of euro to dampen the impact of the pandemic and contagion suppression measures on their economies. Latvia alone has marshalled some EUR 3 billion, including the country’s EUR 550 million issue of six-year treasury bills on March 26, the first medium-term maturity international borrowing in several years. Finance Minister Janis Reirs said…