Country Report Estonia September 2009

Outlook for 2009-10

• 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.
• Political relations with Russia will remain tense, and this will have an adverse effect on the Estonian oil transit business.
• The economic downturn will lead to a shortfall in tax receipts in 2009. Spending pressures will remain high, despite continuing adjustments.
• The budget deficit is forecast to reach 4% of GDP in 2009. The Economist Intelligence Unit's central scenario is that the Maastricht limit of 3% of GDP will be met in 2010, but even this is subject to considerable doubt.
• A sharp contraction in domestic demand and poor export prospects are forecast to cause real GDP to fall by 13% in 2009 and by 3% in 2010.
• Weaker cost pressures and lower commodity prices will lead to 0.8% annual average deflation in 2009, compared with 10.4% inflation in 2008. A further contraction in wages and domestic demand will keep inflation low in 2010.
• As domestic demand weakens, the current account is set to move into slight surplus, from a deficit of 9.4% of GDP in 2008.

Monthly review

• Economic policy has continued to dominate political discourse in Estonia. The government has been accused of ignoring constitutional precedents and trying to rule by fiat, but has harshly rebuffed criticism of its policy stance.
• The state budget for January-July recorded a deficit of EEK4.1bn (US$348m), or over 90% of the planned full-year deficit.
• Parliament passed a second budget revision in June, cutting expenditure and revenue targets further. A rise in the rate of value-added tax (VAT) and some excise duties was implemented on July 1st.
• A flash estimate from Statistics Estonia reported a fall in real GDP of 16.6% in the second quarter of 2009, compared with a fall of 15.1% in the first quarter. Manufacturing, trade and construction suffered sharp falls.
• The indirect tax increases implemented on July 1st have had only a slight impact on inflation, pushing consumer prices up by 0.9% month on month. In year-on-year terms, prices continued to fall, by 0.7%.
• Unemployment reached an eight-year high in the second quarter of 2009, at 92,000, or 13.5% of the labour force. Unemployment rates among men and among non-ethnic Estonians are higher than the overall average.

Source: Country Report

This report covers the following industry codes:
SIC Code: 1
NAICS Code: 11