Extract D: The Baltic Coast Sector

In the third quarter of 2024, real GDP across the Baltic Coast economic area contracted by 0.4%, marking the second consecutive quarter of shrinking national output. Industrial manufacturing, particularly high-tech electronics and timber processing, saw output plummet by 1.8%, while the service sector barely broke even.

This downturn is heavily tied to weak external demand from major European trading partners. Business confidence index values have plummeted to levels not seen since the pandemic, as tightening monetary policy by central banks has raised borrowing costs. Commercial lending has dried up, and export volumes are falling sharply.

With rising price pressures beginning to cool, focus has shifted back to domestic household demand. Real wage growth remains negative as wage increases fail to keep pace with past inflation, severely squeezing disposable income. High levels of outstanding variable-rate mortgage debt have further eroded household purchasing power, forcing families to build up precautionary savings. Consequently, boardrooms are increasingly worried about a prolonged technical recession, forcing firms to halt recruitment and scale back expansion plans.

While some policymakers are calling for targeted tax cuts to boost consumer spending, fiscal hawks warn that high government debt leaves little room for maneuver, leaving central banks with the difficult task of balancing inflation control against the risk of a deeper economic slump.

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Extract D states: 'Consequently, boardrooms are increasingly worried about a prolonged technical recession...'