The Baltic states – Lithuania, Latvia and Estonia – experienced a strong economic growth after regaining their independence in 1990. This received an additional boost after their accession to the EU in 2004. Transuniverse’s traffics to the region was therefore growing steadily. Currently, this growth has stalled: the sanctions against Russia and the energy crisis had a major impact on all three countries and thus also on our traffics. Nevertheless, the outlook is favourable, as the three states previously proved their exceptional resilience.
The fact that the Baltic states were doing less well economically late last year and still early this year – as you can read further in our analysis – had repercussions on Transuniverse’s traffics. “These are mainly export-oriented. Some goods, such as medical products, are not experiencing a downturn but industrial goods are not doing as well. By the way, this is a general phenomenon in Europe. So it’s a mixed picture,” says Niels Vereecken, Traffic Operations Manager.
“However, we continue to maintain a nice regularity of service, with two departures per week, on Tuesdays and Fridays. Ensuring a higher departure rate would be difficult because available capacity has been reduced: we work with Lithuanian carriers and they too are increasingly facing driver shortages,” he adds.
“Lithuania is the biggest market in the Baltic States. That is why we use the capital Vilnius as our platform. From there, we cover the rest of Lithuania as well as distribution in Latvia and Estonia. For this, we rely on an established player in the region, Nunner Baltics,” states Oksana Zhelnova, Senior Traffic Operator for Eastern Europe. Lead times are 4-5 days for Lithuania and an additional day for Latvia and Estonia.
“In addition to groupage, Welpa Trans also allows us to carry out specific orders from clients. Our subsidiary specialises in vehicle chartering, so we can meet requests for express transport, special loads and unusual destinations,” Niels adds.
Being temporarily less busy allows us to investigate operations into the future. “With Nunner Baltics, we have the right partner, but everything could be better. They recently visited us in Wondelgem to discuss how we can further improve services. As soon as the economy picks up in the three states, we will be able to scale it up more efficiently,” Oksana adds.
Fast growers
After regaining their independence in the early 1990s (after the collapse of the Soviet Union), all three Baltic states experienced strong growth. The switch from a planned economy to a market economy happened successfully, and the three countries’ governments pursued public spending policies that were at once prudent and ambitious. This growth received an additional boost when Lithuania, Latvia and Estonia joined the European Union in 2004. This earned the states the nickname of ‘Baltic tigers’.
Before the 2009 financial crisis, the three states – Lithuania in the lead – were among the fastest-growing economies in the European Union. That crisis hit them very hard, but they quickly recovered thanks to increasing consumption, itself due to constantly rising wages. In 2020, the average monthly wage in Lithuania was 1,450 euros, doubling from six years earlier. That year, Estonia’s average monthly wage was about the same. Latvia, on the other hand, lagged behind with 1,100 euros per month. Unemployment is particularly low in the three countries, which will further boost wages.
Three very different countries
Of the three countries, Lithuania has the largest economy. The main industries are oil refining, food processing, chemicals, furniture, wood products, textiles and clothing. Trade and transport also play a major role.
Trade and transport are also important economic pillars in Latvia, partly due to its good infrastructure. The seaports of Riga, Ventspils and, to a lesser extent, Liepāja are well developed and Riga airport is an important hub. The country is less industrially developed than its southern neighbour. The service sector there is quite large.
Estonia is a case apart: it is a small country that was very poor 30 years ago but has grown into a high-tech and innovative society. It has a structurally sound economy thanks to a flexible labour market, thoughtful legislation and a transparent tax system. Production of modern products and a dynamic IT and communications sector are growth engines.
Major impact of the war in Ukraine
Although economic ties with the rest of the EU have grown substantially, those with Russia remained large for historical reasons. Dependence on Russian oil and gas also remained high. However, the Baltic countries were among the first to quickly sever all energy ties with Russia after the invasion of Ukraine and find new suppliers of natural gas, electricity and oil. This came at a price. The sanctions also brought trade with that country to a halt.
This translated into sky-high inflation rates in the second half of 2022. For the full year, inflation reached 18.9% in Lithuania, 17.2% in Latvia and a whopping 19.4% in Estonia. Although energy prices have since fallen, ripple effects mean inflation is still expected to be 8.7%, 7.9% and 6.2% in 2023, respectively. Only in 2024 will there be relief with expected inflation of 2.1%, 1.5% and 2.2%.
The impact on GDP growth was large: for full-year 2022, it was just under 2% in Lithuania and Latvia and even negative (-0.3%) in Estonia. The increase is expected to barely exceed zero in the three countries this year and only recover by 2-3% in 2024.
Exceptional resilience
Few economic experts dare to comment on medium-term growth prospects. This is mainly due to the unpredictability of the war in Ukraine. They do point out that the Baltic states have shown spectacular resilience in recent years: the Covid19 pandemic was absorbed very quickly and they quickly got the explosion in inflation back under control. That resilience is supported by exceptionally high employment and low unemployment.