Country Report Estonia January 2009

Outlook for 2009-10

• Strains within the ruling coalition are likely to deepen over the next two years, possibly threatening its stability. However, even if the government were to collapse, there would be few significant changes in economic policy.
• Political relations with Russia will remain tense, and this will have an adverse effect on Estonia's oil transit business with Russia. However, this is unlikely to have a significant impact on the economy overall.
• The economic slowdown will lead to a significant shortfall in tax receipts in 2009. However, spending cuts should allow the general government budget deficit to remain below the Maastricht limit of 3% of GDP.
• A sharper than previously expected contraction in domestic demand and poorer export prospects are now forecast to cause real GDP to shrink by 2.3% in 2008 and by 3.3% in 2009 (compared with 2% and 2.5% previously).
• The economy should recover from late 2009, as domestic demand stabilises and exports grow more strongly. Real GDP is forecast to rise by around 2% in 2010.
• Weaker domestic cost pressures and lower global commodity prices will allow inflation to drop from an estimated 10.4% in 2008 to 4.5% in 2009, and to 3.5% in 2010.
• As domestic demand weakens, the current-account deficit is set to narrow sharply, from 18.1% of GDP in 2007 to an estimated 10.6% of GDP in 2008, and to 3.7% of GDP by 2010.

Monthly review

• The governing parties pushed through changes to the electoral law that may make it more difficult for the opposition Centre Party to retain its control over the city council of the capital, Tallinn, after the October 2009 local elections.
• The government has become much more pessimistic about the economic outlook, forecasting that real GDP will contract by 3.5% in 2009.
• The government has agreed another EEK2bn (US$165m) in spending cuts in the 2009 budget, with the aim of keeping the overall budget deficit below the 3% of GDP Maastricht limit in 2009.
• Full figures in the national accounts show that real GDP fell by 3.5% year on year in the third quarter of 2008. Domestic demand fell sharply, but real exports of goods and services rose at a healthy rate.
• Industrial output fell sharply in October, by more 10% year on year.
• Consumer price inflation fell to 8% year on year in November, as pressures from both domestic costs and world commodity prices abated.

Source: Country Report

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