High inflation will curb Baltic growth rates in 2022

Significance

Between the beginning of 2021 and April 2022, inflation in the three Baltic states went from near-zero to double digits. The acceleration was initiated by higher energy prices in the second half of 2021, and then exacerbated by Russia’s invasion of Ukraine.

Impacts

• The construction sector will be under pressure due to high energy costs as well as higher costs for building materials.
• Public sector construction projects may be cancelled or delayed due to high costs as well as tight labour markets.
• The reduction in purchasing power from high inflation will hurt sectors not related to essentials.
• Tourism, restaurants and catering which suffered during the pandemic will do so again.
• Economic growth is still forecast to be positive in 2022, but further reductions in real incomes may create a recession.