The crisis and economic recovery in Baltic countries at close range

Abstract

The paper analyses the crisis and recovery in three Baltic countries, Estonia, Latvia and Lithuania. Using macroeconomic data for the three countries over a 12-year period, 2005-2011, the paper examines the factors leading to- and out the crisis, the policy responses to the crisis, an evaluation of their recovery and the lessons that can be learned. Three years after the 2009 recession, the global recovery is faltering. The present analysis undoubtedly shows that Estonia has passed the crisis due to excellent readiness with least losses, and it was valued at the admission to the EU Euro countries union. What about other two countries? They have passed the crisis with huge losses. The policymakers in all three countries are under pressure to act. What after-crisis policy strategies are under choice judging at a long-term perspective? The first and most obvious lesson is that a vulnerability of economy should be avoided. The recession conditions contribute to the economic restructuring through stimulating the business churn, the entry and exit of firms, and by motivating the incumbent firms to adapt products and business processes. The dynamic, innovative new businesses have an important role to play in leading the economy out of recession.