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Much has been made of the fact that the Baltic states are on the frontline in the standoff between Russia and the European Union, but the effects of dwindling demand and capital from the east, and the growing sanctions war, are more limited than many might think, according to a new report.

The trio of states flanking Russia and Belarus are the most vulnerable to the drop in the value of the ruble and trade blockades because of their small size and links to the eastern giant. While Poland - which has led the calls for a tough stance from the EU over Moscow's role in Ukraine - has had  a greater volume of trade hit, it is fellow hawk Lithuania that is considered most at risk because Russian trade  makes up a greater percentage of its GDP.

Many have connected  the drop in Polish macro-indicators in recent months with dropping trade with Russia and Ukraine. However, most analysts stress that the ongoing crisis is unlikely to be the culprit, and that the risks to CEE as a whole have been overstated.

Likewise for the Baltics, according to Liza Ermolenko at Capital Economics. "So far at least, the crisis in Ukraine doesn't seem to have had much of an impact on overall exports from or capital flows to the Baltic States, despite their relatively large ties to Russia," she writes. "When it comes to trade, the sanctions and falling ruble appear to be having less impact than expected. "

The Baltics' exports to Ukraine are small, but shipments to Russia account for 10- 20% of total exports, making the Baltics more exposed to weaker Russian demand than other parts of the region," Ermolenko notes. However, although "exports from Latvia and Estonia to Russia have weakened ... this hasn't prevented overall exports from strengthening over the first half of the year. Moreover, exports from Lithuania to Russia have picked up, meaning that the overall impact of Russia on the Baltics' exports has been minimal."

While the data quoted is from July, and therefore precedes Russia's embargo on EU food exports, the analyst suggests that the impact of that will still be limited, despite Russian appetite for Lithuanian dairy products and Latvian sprats. 

That is because many Baltic exports to Russia were actually re-exports, she says. "As such, a fall in exports of the banned products to Russia would be mirrored by a decline in imports, which would partially offset the impact on growth."

The other major point of concern has been capital flows, especially in Latvia, where Russian cash represents a huge slice of deposits in the banking sector. However, outside headline names at risk from EU sanctions, the crisis is only likely to increase capital outflows from Russia. "For now," suggests Ermolenko, "there's little evidence of [capital outflows from the Baltics]. 

The main point of concern is confidence, the report concludes. "This is more intangible, but surveys, such as the EC's economic sentiment indicator, have weakened in recent months," the analysts notes ... One particular point of concern is the drop in Lithuanian consumer confidence to a two-year low."

While the overall tone then is bullish on the Baltics resilience to the Ukraine crisis - assuming there is no turn for the worse - Capital Economics does worry that the "decline in confidence in the region, and in Lithuania in particular ... may be more damaging."