Estonian economy to grow by 1pct in 2010

According to Ministry of Finance’s Spring Economic Forecast, Estonian economic growth is expected to recur on annual basis in 2nd half of 2010. Ministry expects Estonian economy to grow by 1% in 2010 and by 4% in 2011. Growth is expected to be led by export, supported by faster than expected recovery of external demand.

Estonian economy is in the beginning of new growth phase, but labour market situation is still stabilising. Recovery on export side places a foundation to growth that also brings along lagged improvement of labour market and domestic demand. Though annual unemployment rate is expected to increase and employment fall in 2010 compared to 2009 average, first positive signs can be already seen in labour market.

Improvement of world growth outlook raises inflationary pressures globally, that is somewhat offset by the weakness of our domestic demand. Consumer prices are expected to increase by 1.1% in 2010 and should accelerate to 2.0% in 2011. Inflation is also picking up in eurozone, thus the fulfilment of Maastricht price stability criterion is not threatened.

The general government budget deficit is below the Maastricht criteria in 2010 and also in coming years. According to forecast the deficit levels are 2.5% of GDP in this year and 2.2% of GDP in 2011. After 2011 the deficit will start to decrease in each year reaching surplus in medium term perspective.

Minister of Finance Jürgen Ligi says that recession has laid the new foundation for new and stronger growth path for Estonia. „The most painful part of economic adjustment is over and there are clear signs of structural improvement. Estonian entrepreneurs, people and government have learned a lot from crisis and we are now stronger than before,” said Ligi.

According to Minister, Estonia has coped well with the crisis. “Estonian fiscal policy is one of our main advantages. We have lowest debt in European Union and we are not dependant on artificial incentives, from which drawing back is substantial problem for many countries. This has also advantage concerning future tax burden,” said Ligi.

Ministry of Finance’s Spring Economic Forecast is the basis for next four year’s budget strategy (2011-2014).

Additional materials: Summary of MoF Estonia Spring Economic Forecast

Source: Estonian Ministry of Finance