Good News, Bad News From Latvia & Estonia
And now that we're on the subject of the economic downturn, the bad news is that the downturn appears to be getting worse. In Latvia, industrial production fell a full 11.1% from a year earlier, and in Estonia real retail sales fell 6% from a year earlier. It seems pretty safe to say that the downturn will get worse before it ends, something that is bad news for Swedbank and the other Swedish banks with high exposure to Latvia and Estonia.
In the medium to long term though, to the extent the fixed exchange rate limits the discretionary powers of the government, it will also limit the ability of government to mess things up further and so enable Estonia and Latvia to purge their excesses and thereafter start a new recovery.