Country Report Estonia August 2011

Country Report Estonia August 2011

Outlook for 2011-15

• Since the election in March 2011, a centre-right coalition of the Reform Party and the Pro Patria-Res Publica Union (IRL) has a parliamentary majority. Policy disputes could test the coalition, and it may not survive for a full term.
• Political relations with Russia will remain tense, which will have an adverse impact on Estonia's oil transit business.
• A broad political 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 economic contraction. Growth will strengthen in 2011-15, averaging 3.8% annually.
• Rising food and oil prices are expected to raise inflation to an average of 4.7% in 2011. Inflation will then slow to an average of 3.2% per year in 2012-15 as global commodity prices ease.
• Estonia adopted the euro in January 2011. There is a risk that euro zone interest rates could prove too low for Estonia's transition economy, resulting in higher than expected consumer price inflation.
• The current account will remain in surplus in 2011. However, reviving domestic demand and a deteriorating income balance will cause the surplus to erode in 2011-12, prompting a return to deficit in 2013-15.

Monthly review

• Tensions within the IRL, the junior party in the ruling coalition, have increased, with several prominent members of the conservative Pro Patria wing airing the possibility of forming a new party.
• No complete budget data are available for the first half of 2011, but tax revenue has performed robustly. Tax receipts rose by over 6% year on year in January-June, with income and profit taxes rising particularly quickly.
• Monthly data indicate that real GDP growth slowed in the second quarter. Industrial output growth, which stood at 33% in March, slowed to 31% in April and 26% in May.
• Surveys of consumer sentiment show only a slight improvement in consumer confidence, with the positive effect of falling unemployment broadly matched by residual worries about rising prices, despite a recent slowdown in inflation.
• Annual inflation, as measured by the consumer price index (CPI), dropped from 5.3% in May to 4.9% in June, the lowest rate since October 2010.

Source: Country Report

• Highlights
  • 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: International assumptions
  • Outlook for 2011-15: Economic growth
  • Outlook for 2011-15: Inflation
  • Outlook for 2011-15: Exchange rates
  • Outlook for 2011-15: External sector
  • Outlook for 2011-15: Forecast summary
  • The political scene: Discord within the IRL picks up
  • Economic policy: Estonia's credit rating is raised again
  • Economic policy: Tax revenue performs well in the first half of the year
  • Economic performance: Economic growth looks to have slowed in second quarter
  • Economic performance: Inflation falls
  • Data and charts: Annual data and forecast
  • Data and charts: Quarterly data
  • Data and charts: Monthly data
  • Data and charts: Annual trends charts
  • Data and charts: Monthly trends charts
  • Data and charts: Comparative economic indicators
  • Basic data
  • Political structure