Country Forecast Estonia September 2011 Updater

Country Forecast Estonia September 2011 Updater

Overview

Since the election in March 2011 a centre-right coalition of the Reform Party and the Pro Patria-Res Publica Union (IRL) has had a parliamentary majority. Policy disputes could test the coalition, and it may not survive for the full term. Political relations with Russia will remain tense. A broad consensus exists on the need for tight fiscal management. The budget deficit is expected to remain well below the EU-mandated limit of 3% of GDP in 2011-13, before returning to surplus in 2014-15. Net exports and inventory rebuilding produced real GDP growth of 3.1% in 2010, following two years of contraction. Growth will strengthen in 2011 to more than 5%, but then fall sharply as the external economic environment deteriorates, recording annual average growth of just 3.3% in 2012-15. Rising food and oil prices will raise inflation to an average of 5% in 2011. It will then slow in 2012-15, as global commodity prices ease and domestic demand remains weak. Estonia adopted the euro in January 2011. The current account will remain in surplus in 2011. However, falling external demand and a deteriorating income balance will cause the surplus to erode in 2011-12, prompting a return to deficit in 2013-15.

Key changes from last month

Political outlook

Internal party splits suggest that the coalition is unlikely to survive for the full parliamentary term. The re-election of Toomas Henrik Ilves as president in August is a victory for the existing main parties.

Economic policy outlook

Despite a robust performance in the first seven months of 2011, we continue to expect that the budget will record a small deficit over the year as a whole. Estonia will support the conservative German approach to the issue of debt resolution in the EU.

Economic forecast

Inflationary pressure remained high in the first nine months, but is expected to ease from 2012. We have revised down our forecasts for economic growth from 2012 to take account of the likely impact of the intensification of the debt crisis in the euro zone, in particular.

This report covers the following industry codes:
SIC Code: 70;60
NAICS Code: 72;52

• Estonia at a glance: 2011-15
  • Country forecast overview: Highlights
  • Country forecast overview: Key indicators
  • Country forecast overview: Business environment rankings
  • Country forecast overview: Estonia's business environment at a glance
• Fact sheet
  • Outlook for 2011-15: Political stability
  • Outlook for 2011-15: Election watch
  • Outlook for 2011-15: International relations
  • Outlook for 2011-15: Policy trends
  • Outlook for 2011-15: Fiscal policy
  • Outlook for 2011-15: Monetary policy
  • Outlook for 2011-15: Economic growth
  • Outlook for 2011-15: Inflation
  • Outlook for 2011-15: Exchange rates
  • Outlook for 2011-15: External sector
  • Data summary: Global outlook
  • Data summary: Gross domestic product, current market prices
  • Data summary: Gross domestic product, at constant prices
  • Data summary: Gross domestic product by sector of origin
  • Data summary: Growth and productivity
  • Data summary: Economic structure, income and market size
  • Data summary: Fiscal indicators
  • Data summary: Monetary indicators
  • Data summary: Employment, wages and prices
  • Data summary: Current account and terms of trade
  • Data summary: Foreign direct investment
  • Data summary: External debt
  • Data sources and definitions