RIGA - Swedbank, the largest bank in the Baltic states, said on Friday it had slashed its economic forecasts for the three countries, predicting a much deeper and longer recession, with Latvia worst hit.
For Latvia, which last year had to take an IMF and EU rescue worth 7.5 billion euros, it forecast a contraction in gross domestic product (GDP) this year of a huge 10 percent, versus an earlier forecast of a four percent drop.
It cut Estonia to a drop of 7 percent from -2.3 percent and Lithuania to -4.5 percent from growth of 0.5 percent. It did not rule out even worse turnouts for Latvia and Lithuania.
The banking group said in a new economic outlook that the Baltic states were already moving to recession before the global crisis.
'However, the global financial and economic crisis has made the outlook for these three economies much worse and now the possible outcomes are between bad and worse,' it added.
It saw the 2010 turnout at 1 percent growth for Estonia, and GDP falls of 2 percent and 3 percent for Latvia and Lithuania.
Inflation would drop this year to zero in Latvia on average, but come in at 1 percent and 5 percent in Estonia and Lithuania.
The Baltic countries faced falling domestic and external demand with 'annual deflation a very possible scenario in 2009-10', it said.
It said the governments had to act to solve social tensions and added that, 'if political problems are not solved or get worse, the situation in the economies might turn extremely bad'.
Latvia and Lithuania have already been hit by riots when protests against government austerity policies turned sour.
Swedbank and other Nordic banks SEB, Nordea and DNB NOR are market leaders in the Baltic region after years of strong expansion, but they have sharply reduced credit during the financial crisis.
Reporting by Patrick Lannin ; editing by Stephen Nisbet