Estonia Cuts 2014 GDP Growth Forecast to 2% on Exports

Estonia’s economy will expand more slowly than previously estimated this year as sanctions imposed against neighboring Russia may dent the already-weak outlook for exports, the Finance Ministry said.

Gross domestic product will grow 2 percent this year, compared with 3.6 percent forecast in September, the ministry in the capital, Tallinn, said in an e-mailed statement today. Next year’s forecast was kept at 3.5 percent.

The Baltic nation, which adopted the euro in 2011, has seen its economic expansion slow to a four-year low of 0.8 percent in 2013 after government spending on construction declined and weakening trade with Russia cut into transport revenue. The ministry is forecasting smaller gains for the economy than the central bank and the International Monetary Fund, which last month cited “domestic overheating” as a key risk for Estonia.

“Economic growth could slow to 1 percent this year and 2 percent next year if risks related to further escalation in Ukraine, including a significant weakening of Russia’s economy, materialize,” Andrus Saalik, head of the ministry’s fiscal policy unit, told a news conference in Tallinn. “As for our main scenario, our growth forecast is mainly affected by a weaker outlook for Finland, and to a lesser extent by Russia.”

Crimean Crisis

The U.S. and its European allies have slapped sanctions on senior Russian officials after the takeover of Crimea last month and urged President Vladimir Putin’s government to withdraw thousands of troops massed on Ukraine’s eastern border in the worst standoff since the Cold War.

Estonia’s central bank in December forecast 2014 GDP growth at 2.6 percent, while the IMF said March 12 that the country’s economic expansion may accelerate to 2.5 percent even as a souring outlook in its Nordic and Baltic trade partners may put that scenario at risk.

Standard and Poor’s said in January that growth will probably average more than 3 percent annually in 2014-2017 as it affirmed Estonia’s credit rating at AA-, the fourth-highest investment grade.

SEB AB, the second-largest lender in the Baltics, last month forecast economic growth slowing to 0.5 percent this year as Russia’s deteriorating economy drags down Estonia’s other key trade partners -- Finland, Latvia and Lithuania. Finland last week cut its economic growth forecast for 2014 to 0.5 percent from the 0.8 percent estimated in December.

Estonia’s exports of goods, which have failed to grow on an annual basis since last May, plunged 20 percent in January, the most in at least a year, the Tallinn-based national statistics office said March 11.

Inflation will probably average 1.4 percent this year and 2.7 percent in 2015, compared with September forecasts of 2.7 percent and 2.8 percent, Estonia’s Finance Ministry said.

Before it's here, it's on the Bloomberg Terminal.