Minister: We have two weeks to rescue Rail Baltic

Urve Palo, Estonian Minister of Economy, says that she is confident that Lithuania will shortly accept that Vilnius Cannot be included in the current route for Rail Baltic. Speaking of the statement made recently by European Commission’s representative Pavel Telicka that Vilnius cannot be added to the route and that he cannot understand why Lithuania have changed its mind, Palo said that Brusselks have now made its position clear.

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Criminal police arrests head of Estonian mafia

In one of its largest operations against organized crime, the Estonian criminal police on Monday arrested several members of the Estonian mafia, including its head Assar Paulus, writes Postimees.

In the operation that was prepared for around six months, the criminal police arrested about twenty Estonians who are suspected being mobsters.

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The economic growth forecast for 2014 is two percent

The Ministry of Finance reduced the economic growth forecast of 2014 to two percent. The cause for the lower than expected economic growth is primarily the deterioration of growth outlook in Estonia’s neighbouring countries which has postponed the expected increase of export growth and private sector investment growth.
While economic growth is mainly supported by domestic demand at the beginning of this year, it will quicken thanks to recovery of foreign demand in the second half of the year, leading to the export and service industry’s increased contribution to economic growth.

For the next year, the Ministry forecasts an increase of the economy by 3.5 percent, where investment activity and consumption courage should also start to grow with improvement of the  economic conjuncture. Growth of the construction market is expected to recover starting from 2015 as well due to increasing private sector investment activity.

Risks of economic outlook are mainly related to events in Ukraine which have been developing fast in recent weeks and carry economic effects which are difficult to assess with precision before the foreign policy situation has stabilised.

Demand in foreign markets is more modest than expected and export of high-share goods is weak, therefore the export forecast for 2014 was decreased to 2.4 percent. Export will pick up within the next year and the growth opportunities of manufacturing enterprises will be expanded by a gradual recovery of Finnish economy as well. Due to large investment needs, import growth in the forecast period will be somewhat faster compared to export.

Consumer confidence has adhered to a steady growth trend for the past couple of years, therefore it can be assumed that continuation of stable developments and reduction of unemployment will keep the slowing of private consumption’s growth merely marginal during this year and the next so that it will remain just below 4 percent. This year, support for real growth of consumption will come from a deceleration of inflation and next year from lowering of the income tax rate.

Consumer price inflation will remain low at the beginning of this year, quickening somewhat during the last months of the year. Prices will be affected in the second half of the year by an increase of food prices and a decrease of housing expenses due to electricity, district heating and gas becoming cheaper. In 2014 as a whole, inflation  will be just 1.4 percent, becoming 2.7 percent in 2015.

The number of employed people will continue to grow in 2014–2015, and afterwards will probably turn to a small decline. Unemployment rate will decrease below 8 percent in the coming year and if favourable economic developments persist then down to near 6 percent by the end of the forecast period. A fast growth of average salary by nearly 8 percent surprised in 2013 and this growth will remain somewhat lower in the near future, around 6–7 percent. However, low inflation will still keep the growth of average real salary at a high this year (4.8 percent) and it will subsequently remain around 3.5 percent.

Due to a slight deterioration of the economic environment, the forecast of tax revenue has also been lowered, mainly on account of social tax and fuel excise. As a result, this year’s nominal fiscal deficit of the government sector will be 0.7 percent of the GDP; the budget will remain balanced structurally (the position without one-off influences and without the effect of economic cycle). Nominal deficit can be compensated from the state’s liquid financial assets.

The forecast of public finance takes into account the laws in force, therefore possible additional measures (incl. a new coalition agreement) will be added to the forecast when preparing the state fiscal strategy (SFS 2015-2018). With the SFS, the government adopts the fiscal policy principles for the next four years, including targets for the government sector’s fiscal position.
Source: Estonian Ministry of Finance

Estonia’s economic linkages with Russia

Russia’s share in Estonia’s foreign trade is below 10%
Russia’s share in Estonia’s foreign trade is rather small, only 9% in 2013. However, Russia’s market is more relevant for certain sectors, like food industry and agriculture, as well as chemical and textile industries. As a source of raw materials, Russia is important for timber, furniture, chemical, and metal industries. Russia’s market is also significant for Estonia’s exports of transport and travel services.

Russia’s share in foreign investments remains small
The stock of Estonia’s investment in Russia and Russia’s investment in Estonia remains modest. At the end of 2013, the stock of Estonia’s investments in Russia amounted to 4% in Estonia’s total investment abroad, and the stock of Russia’s investment in Estonia was also 4% of all foreign investment in Estonia.

The crisis in Ukraine will affect trade and investment flows
Exports to Russia are affected not only by the decreasing purchasing power of Russians, but also by possible trade barriers. Investment flows will be smaller because investing in Eastern Europe is considered more risky and will be less profitable when economic growth in the region will be slower. If the conflict in Ukraine does not escalate and sanctions remain targeted with a modest impact, the Baltic economies are still expected to grow, albeit slower than anticipated before. Should the conflict escalate and broader trade sanctions be introduced, Estonia and the other Baltic economies will probably be hit harder – in which case a recession should not be ruled out.

Read more from Swedbank Macro Research

Foreign Investors’ Council in Latvia elects new board

Foreign Investors’ Council in Latvia (FICIL) has elected a new management board headed by Enrique Garcia, CEO of Cemex Latvija.

Garcia is taking over from Jerry Wirth, representative of the American Chamber of Commerce in Latvia.

The board will have two vice chairwomen: Ginta Cimdina, CEO of Fortum Latvija, and Zlata Elksnina-Zascirinska, Country Managing Partner at PWC.

Chairman of FICIL’s Board Enrique Garcia says: “We commend the government on maintaining the stable economic growth and financial discipline needed for the full integration to the European Union with the adoption of the Euro. Also, recognition is well deserved for introducing reforms, which have resulted in Latvia’s increased performance in the Global Competitiveness Report and Doing Business Index. Latvia has been able to “stay ahead of the curve” and differentiate itself from other economies still struggling after the crisis.

Nevertheless, last year in the context of the Baltic Development Forum the lack of strong leadership was recognized as one of the main obstacles to more healthy growth in general for the economy and in particular for FDI in Latvia. Specifically, foreign investors pointed out that Latvia’s main actors in government should not only set out a vision on where the country needs to go, but most importantly should capable of reaching consensus to make decisions and implement the actions needed with the appropriate accountability.

Latvia has adopted a variety of policies and introduced regulation under the aegis of fostering a better business environment and national competitiveness: National development plan, Industrial policy and related documents, Policies for regional development and territorial planning, Public sector reform etc.

Implementing the “policy talk” is expected, amongst others, to raise Latvia’s attractiveness to FDI, being at least in theory an important element for healthy economic growth. During this year’s High Council meeting, FICIL would like to address the gap between “talk and action” to achieve concrete and coherent results.”

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Tallink in the middle of scandal in Sweden over executive’s statement

The statement made by Vahur Ausmees, head of personnel and development in Tallink Group, in which he seemed to imply that it was women’s fault if they get drunk and are raped, has caused a major scandal in Sweden.

In an interview to TV4 Nyhetern on reports of rape on passenger ferries, Ausmees said that women should be aware that when they drink alcohol they could fall victims of a rape.

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95% of taxpayers filed tax returns electronically

95.4% of taxpayers in Estonia filed their tax returns electronically, an increase of 0.4% year on year, spokespeople for the Estonian Tax and Customs Board said.

All in all, tax returns for 2013 were filed by a total of 629,715 Estonian taxpayers.

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