Since the invasion of Ukraine and Helsinki closing its border with Russia, Finland has had to trade through the Baltic Sea. The Finns hope to achieve economic growth in difficult conditions, but it is not only Helsinki that finds itself in a difficult situation. Estonia also recorded almost no economic growth. Meanwhile in Poland and Lithuania, buyers are willing to spend money. Consumer sentiment indicators suggest this situation is likely to continue.
To understand the economics of frontline countries, one must take into account trade with Russia, investor uncertainty, defense spending and consumer attitudes. Although unemployment is practically non-existent in Poland, another specter has loomed over Poland and is rarely talked about yet. Public debt may reach 70 percent. GDP in 2028 — compared to 51 percent before Russia started an open war.
Lithuania is not far behind Poland when it comes to economic development. Forecasts suggest that the economies of both countries will continue to grow at a rate of 3%. annually. However, Polish public spending affects debt.
According to government forecasts, the Polish budget deficit this year will amount to as much as 6.9%. GDP, and by 2028 it will still be high and will amount to 6.1%. Ministers give priority to defense and supporting consumption.
— There are no more fiscal conservatives, says Mateusz Urban from the research company Oxford Economics.
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In Finland, where government spending can spur purchases by struggling consumers, ministers hope to reduce the deficit. However, they realize that according to the forecasts debt to GDP will approach 90%. at the end of next year.
The eastern flank is getting into debt
For many countries, Russia was a trading partner and supplier of raw materials. For example, the Finnish wood and paper industry imported wood from Russia, and Finnish refineries distilled Russian crude oil. Finnair, Finland's national carrier, used Russian airspace to take full advantage of Helsinki's location at the center of routes between Europe and Asia.
The severance of relations with Russia caused difficulties. However, according to a study by the Finnish Central Bank, the overall impact on economic growth was small. The loss of investor confidence seems more serious. Finland is not the only one facing this problem.
Aerial view of Helsinki (illustrative photo)T van den Brink / Shutterstock
Over the last two years, foreign direct investment in Poland has declined, while it has remained stable in other countries close to Russia.
While there are many non-conflict reasons for this change, it is worth noting that companies doing business in the region are now much more willing to purchase insurance, suggesting that fears of sabotage or destruction may play a role.
Defense spending has not yet been of much help in solving this problem. Although Poland has ordered more munitions and drones, its domestic industry is struggling to meet demand. Finland, like many other neighboring countries, plans to increase military spending and hopes to benefit from the relaxation of Germany's financial policy.
The problem is that there are not many arms companies in Finland, which limits profits. For example, when Finland ordered 64 F-35 fighters from America in 2021 for USD 9 billion 400 million. (PLN 34,220 million, 3.2% of GDP), only a few parts could be produced in the country.
In Estonia, Finland and Latvia, consumers are not optimistic, leading to a downward spiral. A weakened economy makes consumers hesitant to shop for fear of losing their jobs or seeing little wage growth, which in turn worsens the economic situation. The unemployment rate in Finland is close to 10 percent.
People managing the economies of countries located in Russia's neighborhood must cope not only with the threat from Vladimir Putin. They must also face rising military bills and debt consequences.
I’m Ashley Davis as an editor, I’m committed to upholding the highest standards of integrity and accuracy in every piece we publish. My work is driven by curiosity, a passion for truth, and a belief that journalism plays a crucial role in shaping public discourse. I strive to tell stories that not only inform but also inspire action and conversation.
