External environment in the Baltic states and Ukraine

The political and economic situation in Ukraine is unstable in connection with the military actions in the eastern part of the country underway since 2014. The Baltic States, i.e. Lithuania, Latvia and Estonia are recording economic growth despite the unfavorable impact exerted by the environment.


The Bank of Lithuania reported that the pace of economic growth in Lithuania fell in 2015 compared to several recent years by approximately half, chiefly on account of the unfavorable impact exerted by the international environment.

The Bank of Lithuania informed that the economy growth rate decreased by nearly a half in 2015 compared with the previous years, mainly due to unfavorable external influence. GDP growth amounted to 2.0% (year-on-year). Persistently low prices of energy resources and existing economic sanctions on Russia adversely impact the economy of the country, which further affects other countries economically and financially tied with Russia. A significant drop in import to Russia had an unfavorable influence of the results of Lithuanian enterprises that engage in transportation, storage, and warehousing as their re-export activity, especially considering that transportation of goods to the East, constitutes a significant part of their business.

Similarly to the previous years, individual consumption continued to be the cornerstone of economic growth. The labor market remained insensitive to economic slowdown in the country. Employment in transportation and trade enterprises, i.e. entities that most severely suffered from economic slowdown in Russia, stopped growing at the hitherto pace; yet, the growth rate continues to be positive. The number of job places increased in other sectors of the economy. As a result, demand for work did not decrease, which translated into a positive remuneration dynamics. Along with the growing number of vacancies in the economy and lower unemployment rate (to 9.00%), remuneration growth, which was partially caused by an increase in the minimum monthly salary, did not change in comparison with the previous year, which helped households to achieve higher consumption levels.


Despite the ongoing Ukrainian crisis and mutual sanctions between Russia and the European Union, the Latvian economy recorded a medium GDP growth of 3.0% year-on-year. The main growth accelerator was domestic consumption. The business sector that contributed most to GDP growth included production, trade, public utility companies, and, to a lesser extent, providers of other business services. In the first nine months of 2015, exports increased by 2.0% year-on-year. Even though conditions for export in the current international environment are rather unfavorable, the Latvian enterprises continue to show capacity to increase export volume. Increased export, whose dynamics was higher than import growth, translated into Latvia’s improved trade balance in the first three quarters of 2015, compared with the same period in 2014.

The inflation rate remained low and amounted to 0.3% year- on-year. The situation on the labor market improved in last couple of years, which favorable influenced general economic growth – unemployment rate is systematically decreasing, employment rate is growing, accompanied by a relatively rapid increase in remunerations. However, in the second half of the year, the registered unemployment rate increased for the first time since the 2007 crisis (by 0.1 p.p. to 8.3% of economically active persons as at the end of October 2015) year-on-year.


In the first three quarters of 2015 the Estonian economy slightly grew (0.7%). The main factor that contributed to such a growth was higher retail sales. Also depreciation of ruble, and consequently decreased export of goods and services to Russia, had an impact on the mild growth rate.

A significant increase in real revenues caused also a growth in private consumption. It was also reflected in higher households savings and more intense credit activities. The unemployment rate remained stable and reached 6.4% in 2015.

The deflation has maintained at the same level since 2014. The change in CPI amounted to -0.9% year-on-year. The drop in general price level was caused mainly by low energy and resources prices on global markets, as well as sanctions imposed on the Russian market.


Since 2014, political and economic situation in Ukraine has been unstable. This fact is linked with the following factors that influence the Ukrainian insurance market: military action in eastern Ukraine (including the Donetsk and Lugansk regions), annexation of Crimea in 2014, high inflation rate and strong dynamics of local currency (Ukrainian hryvnia) depreciation vs. US dollar and euro, collapse of domestic demand, problems in the banking sector (bankruptcy of Delta Bank, the fourth largest bank in Ukraine).

In 2015, the above-mentioned factors caused an even greater crisis in the Ukrainian economy.

According to the data of the Ukrainian Central Statistical Office, the GDP dropped by 7.2%. Industrial production dropped in 2015 by 13.4%, compared with the level of industrial production in the corresponding period of 2014. The inflation in December 2015 increased by 43.3% compared with December 2014, which resulted from the administratively regulated prices and the depreciation of the UAH. From January to November, a positive foreign trade balance (USD 249.5 million) was recorded, which resulted from a 31.2% drop in import (with a simultaneous 30.9% drop in export.) Turnover of retail and gastronomy companies in Ukraine dropped by 20.7% compared with the 2014 levels.