Riga- The economic outlook is grim for central and eastern Europe (CEE) in general and the Baltic states in particular, according to a report released Wednesday by Scandinavian bank SEB.

In its latest Eastern European Outlook, SEB's Mikael Johansson warned: "Countries with large external imbalances - the three Baltic countries and Ukraine - are the most vulnerable to tighter global credit conditions. Credit growth is clearly slowing from a high level in Ukraine and will fall somewhat further in the Baltics."

"The Baltics are being forced to undergo a tough economic adjustment after their overheating in recent years. Their labour markets have been surprisingly resilient, but unemployment is now climbing.

"In Estonia and Latvia, most indicators today point towards a lengthy recession which will persist during 2009 as well. A rebound in 2010 is expected to be marginal," Johansson said.

Some crumbs of comfort came courtesy of the region's central statistics offices, which released new figures showing inflation starting to decline.

In Latvia, annual inflation dropped to 14.9 per cent from 15.7 per cent in August. In Lithuania, inflation dipped from 12 per cent to 11 per cent during the same period. A day earlier, the Estonian statistics office said inflation stood at 10.5 per cent, down from 11 per cent.

However, with winter approaching, it is feared that big increases in fuel tariffs could fuel inflation once again in coming months. (dpa)