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Estonia Raises 2010 GDP, Inflation Forecasts on Baltic Export Growth
Estonia’s Finance Ministry raised its outlook for economic growth this year due to a stronger recovery in exports than it previously expected, and forecast faster consumer-price growth through next year.
Gross domestic product will probably expand 2 percent this year, compared with an April estimate of 1 percent, the Tallinn- based ministry said today in an e-mailed statement. Growth may accelerate to 3.6 percent in 2011, compared with the previous forecast of 4 percent.
“Developments in Estonia following the crisis are pointing at a fast economic recovery on the back of exports,” the statement said. “The faster-than-expected recovery of external demand and the adjustment of Estonian companies during the crisis have allowed the industrial sector to robustly increase export volumes.”
The Baltic nation, due to become the third east European nation to adopt the euro in January, recorded annual growth in the second quarter for the first time in more than two years. The central bank has warned that higher prices may hamper a recovery from the second-deepest recession in the European Union in 2008 and 2009.
‘Positive Momentum’
“Expectations of a stronger positive momentum have increased since euro adoption in 2011 was confirmed,” said Annika Lindblad, a Helsinki-based economist with Nordea AB, in an e-mailed comment before the forecasts were published. “As the recovery has been, and is expected to be, largely export-led over the short term, a slowdown in the recovery of the world economy, and especially the euro area, is the main risk.”
Nordea sees 2010 GDP growth at 1.2 percent and expects an expansion of 4 percent in 2011, she said.
Average annual inflation may rise to 2.6 percent this year, compared with the previous forecast of 1.1 percent, the ministry said. Next year’s forecast was raised to 2.5 percent from 2 percent seen in April.
Annual inflation will accelerate to about 4 percent by the end of the year due to higher raw material prices and tax increases made last year to reduce the budget gap, said Andrus Saalik, the ministry’s head of economics department, at a news conference in Tallinn. Still, inflation will probably slow at the beginning of the year due to a more stable outlook for oil prices and a milder winter weather forecast, he said.
The fiscal deficit will shrink to 1.3 percent of GDP this year from 1.7 percent of GDP last year, the ministry said, compared with the previous forecast of 2.5 percent. This was mainly due to better tax revenue and proceeds from the sales of spare United Nations carbon credits, it said. The budget gap may widen to 1.6 percent next year and peak at 2.3 percent in 2012, with a balanced budget forecast for 2014.
To contact the reporter on this story: Ott Ummelas in Tallinn at oummelas@bloomberg.net
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