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Estonia Raises GDP Forecast Amid Cushion From Domestic Spending

Aug. 31 (Bloomberg) -- Estonia’s Finance Ministry raised its 2012 economic growth forecast as improving domestic demand cushions the newest euro-area member against a slump in exports.

Gross domestic product will probably expand 2.2 percent this year instead of the 1.7 percent forecast in April, the Tallinn-based ministry said in an economic outlook distributed by e-mail today. It kept its growth forecast for next year at 3 percent. The economy expanded 7.6 percent last year, the most in the European Union.

Estonia, which in 2011 became the first former Soviet republic to adopt the euro, has been buffered by robust retail sales and public-sector construction financed by sales of spare UN carbon-emissions quotas. An export-led recovery powered by Nordic demand is slowing amid the European debt crisis.

Higher tax revenues will help to limit the budget deficit to 1.2 percent of GDP this year, compared with the April target of 2.6 percent, while next year’s shortfall will narrow to 0.6 percent, the ministry said. Estonia is the only euro member that has reported budget surpluses in the past two years and the country has the lowest public debt in the 17-member region.

The Finance Ministry raised its inflation forecasts against a backdrop of higher crude-oil prices, which have surged 12 percent over the past two months.

Consumer prices will probably rise an average 3.9 percent this year rather than the 3.3 percent seen four months ago, the ministry said. Inflation may slow to 3.5 percent next year, compared with a previous estimate of 3 percent, it predicted.

To contact the reporter on this story: Ott Ummelas in Tallinn at oummelas@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net

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