Country Report Estonia November 2009

Outlook for 2010-11

• The current minority administration is highly unlikely to last out the forecast period. Conflicts with the opposition over fiscal policy will threaten its survival, possibly leading to a pre-term election.
• Based on current poll ratings, opposition parties seem the most likely to be able to form a coalition after the parliamentary election that is due in 2011.
• Political relations with Russia will remain tense, which will have an adverse effect on the Estonian oil transit business.
• The Economist Intelligence Unit's central scenario is that the government will meet the Maastricht criterion for a budget deficit no more than 3% of GDP only in 2010, although even this is subject to considerable doubt.
• A continuing fall in domestic demand and poor export prospects are forecast to cause real GDP to drop by 2% in 2010, following an estimated contraction of 13% in 2009. The economy will recover slowly from 2011.
• Higher global commodity prices will push up inflation to an annual average of 0.3% in 2010, following estimated deflation of 0.1% in 2009. A rise in domestic demand will again push up inflation slightly in 2011.
• The current account is forecast to revert to deficit in 2010, following a surplus estimated at 4% of GDP in 2009. A pick-up in import costs and income debits will cause the deficit to widen in 2011.

Monthly review

• The parties that dominate the national political scene performed poorly in the local elections held on October 18th. The main exception was the opposition Centre Party, which increased its share of the vote to 31.5%, from 25.5% in 2005.
• The Centre Party won a convincing victory in the capital, Tallinn, taking 44 of the 79 seats on the city council. The Centre Party will use this position to put pressure on the ruling parties in the national government.
• Budgetary amendments passed in July have helped to stabilise the fiscal position. In January-September the state budget deficit narrowed to EEK2.8bn (US$246m), from EEK4.1bn in January-July.
• The government's draft of the 2010 budget reduces revenue by 0.3% compared with the latest 2009 budget plan, and cuts spending by 1.9%.
• The industrial sector is showing only fitful signs that its decline has bottomed out. In August output fell by 28% year on year and by 1.1% compared with July.
• Following a spike in July owing to indirect tax increases, prices have resumed their falling trend. Consumer prices fell by 1.6% year on year in September.

Source: Country Report

This report covers the following industry codes:
SIC Code: 47
NAICS Code: 48