Baltic Sea Region Affairs: The State of the Region Report 2010

The 2010 State of the Region Report released by Baltic Development Forum today ahead of its Annual Meeting in Vilnius, Lithuania, is titled Top of Europe Recovering: Regional Lessons from a Global Crisis.

The report, the seventh in this series of annual evaluations of competitiveness and cooperation across the Baltic Sea Region, takes the Region’s economic temperature in the first year after the onslaught of the global crisis.

The report tracks different indicators of competitiveness and cooperation in the Baltic Sea Region, following the framework introduced in previous years. A special focus of this year’s report is an analysis of the longer-term economic trends in the Baltic countries and Poland.

“While there is no reason for pessimism about the fundamental competitiveness of the Region, it is too early to call the crisis over”, says the author of the report Dr. Christian Ketels. “The drastic slowdown of the Baltic Sea Region economy is to a large degree the natural result of a global crisis hitting a group of small open economies. But the quick return of business sentiments to pre-crisis levels is not supported by economic fundamentals. Regional cooperation across the Region remains strong, but the general context is less supportive for joint action than in previous years.”

Authors from the three Baltic countries and Poland contributed to this year’s report. “The experience of these countries is a lesson of the profound positive contribution EU membership has made over the last decade, despite the painful recent crisis in the Baltic countries”, comments Dr. Ketels. “But it also reveals that following EU guidelines is not sufficient to achieve sustained gains in competitive-ness. What these countries now need is a new growth strategy, taking into account their respective national opportunities and capabilities.”

Key messages of the State of the Region Report 2010

• The Baltic Sea Region has been hit disproportionally hard by the global crisis, with both labor productivity and labor mobilization dropping; the current speed of recovery is high but fragile

• The dramatic fall in exports has been accompanied by a worrying loss of market share; the crisis might have accelerated structural trends in the global economy working against the Region

• The competitiveness fundamentals remain strong; the on average solid fiscal position of governments even creates opportunities to pull ahead of some international peers

• The level of regional collaboration remains strong, with the EU Baltic Sea Region strategy an important reference, but the governance structure is only emerging

• The last decade has been a period of impressive overall performance for the Baltic countries; they have been remarkably resilient in the difficult adjustment progress; the deep current crisis signals, however, that the economic policy approach needs to be fundamentally reviewed

• Macroeconomic policy in the Baltics has been too narrowly focused on meeting the legal requirements for Euro-zone accession, neglecting the medium-term sustainability of financial markets and, in some countries, public finances

• Microeconomic upgrading in the Baltics has been effective in market opening and (mostly) in the adoption of EU rules and regulation; it has largely failed in building distinct competitive strengths and especially in leading to the fundamental upgrading of local companies

• Poland’s better performance during the crisis is not a reflection of higher or more robust competitiveness, but the result of country-specific factors; its good current position is a unique opportunity to address the country’s competitiveness weaknesses

• To take full advantage of its unique level of existing regional linkages despite a complex political situation following the crisis, the Region should renew the argument for regional collaboration, rethink the appropriate approach towards competitiveness upgrading, and rebuild the institutional framework for collaboration.

Download the Full report.

For a printer friendly pdf-version of the Press release, click here.

Download the Programme of BDF Summit 2010 in Vilnius 1-2 June.

About the Report

The State of the Region Report, drawing on the World Economic Forum’s Global Competitiveness Report, is authored by Dr. Christian Ketels, Principal Associate at Harvard Business School.

Over the years it has become a respected benchmarking tool regarding competitiveness, economic performance and prosperity in Northern Europe. It is used by governments, organizations, financial institutions and business. The 2010 report will also be submitted to the Heads of Governments of the Baltic Sea States Summit, also held in Vilnius 1-2 June.

The 2010 report was developed with support of the Nordic Council of Ministers and the European Investment Bank.

Contacts

Dr Christian Ketels, Principal Associate, Harvard Business School
Phone +46-70-491 46 26, email: cketels@hbs.edu

Hans Brask, Director, Baltic Development Forum
Phone +45-60 21 85 81, email: hb@bdforum.org