Estonia Business Forecast Report Q4 2009

Publication Date	July 2009
Publisher	Business Monitor
Product Type	Report
Pages	58
ISBN Number	not applicable
Product Code	BMI04093

Buy this product or for assistance call +44 20 7060 7474

PDF £250.00$416 | €280

FAX Order above formats by FAX

Summary

Negative Growth To Last In 2010 The credit crunch and subsequent global macroeconomic crisis is forcing the Estonian economy to undergo a structural shift away from rapid debt-financed consumption growth. Even as we expect the recession to trough in H109, we do not expect a sustainable recovery until 2011 and even thereafter growth is expected to settle several percentage points lower than the 2000-2007 average over the long run. To be sure, the adjustment is likely to cause significant economic rifts in the medium term, with three consecutive years of negative growth forecast from 2008-2010.

Unemployment is expected to more than double, while sharp contractions are likely to be recorded in industrial output, the banking system and real wages.

The breakdown of coalition negotiations between Prime Minister Andrus Ansip's Reform Party and the opposition People's Union bodes very poorly for political stability through 2009 and 2010. With the coalition government now holding a minority in parliament, at a time when the sharp recession is likely to continue accentuating political divisions, we believe that the risks of an early election have risen. As a result, we have lowered Estonia's short-term political risk rating to 62.9 and highlight the potential for increased political ructions and policy paralysis.

While holding to the view that H109 is likely to be the trough of Estonia's current recession, we also maintain that negative growth is likely to last well into 2010. Sharp deflation in 2009, the lack of a fiscal stimulus programme and a much larger process of deleveraging will mean that Estonia remains an underperformer through the medium term, and one of only three economies in emerging Europe where we expect a contraction in real GDP in 2010. We forecast real GDP growth in Estonia to come in at -11.2% and -1.2% in 2009 and 2010 respectively.

On June 26, the Russian government has reasserted its plan to cease all rail fuel oil exports via Estonia by 2011. Russian First Deputy Prime Minister Sergei Ivanov stated that the launch of a new oil terminal in Ust-Luga on the Baltic Sea would be completed in 2009 and remove the need for Russian oil exports to be transhipped via Estonian ports. The port at Ust-Luga is expected to have a capacity of 30mn tonnes of crude oil per year. The loss of the oil trans-shipment business will be a negative factor for the wider diversification of the Estonian economy and highlights the significant business environment risks posed by the weak political relationship between Tallinn and Moscow.

Content

Executive Summary
Negative Growth To Last In 2010
Chapter 1: Political Outlook
- SWOT Analysis
- BMI Political Risk Ratings
- Domestic Politics
- Political Risks To Rise Under Minority Government
- The breakdown of coalition negotiations between Prime Minister Andrus Ansip's Reform Party and the opposition
- People's Union bodes very poorly for political stability through 2009 and 2010
- Table: Political Overview
Chapter 2: Economic Outlook
- SWOT Analysis
- BMI Economic Risk Ratings
- Economic Activity
- Negative Growth To Drag Well Into 2010
- While holding to the view that H109 is likely to be the trough of Estonia's current recession, we also maintain that
- negative growth is likely to last well into 2010
- TA BLE: ECONOMIC ACTIVITY
- Balance Of Payments
- Expect A Net Balance of Payments Deficit In 2009
- TA BLE: BALANCE OF PAYMENTS
- We forecast Estonia's current account deficit to fall to 1.2% of GDP in 2009 on the back of a sharp narrowing of the
- trade shortfall
- Banking Sector
- Contraction To Continue Until 2010
- The Estonian banking sector will experience a major contraction in 2009 and 2010 alongside an unprecedented
- deterioration in macroeconomic conditions
- Regional Outlook
- Devaluation Of Fixed Pegs Will Fuel Financial Instability
- We hold to our view that the Baltic and Bulgarian pegs will be devalued, while simultaneously cautioning that this
- will pose significant risks to Western European banks and Eastern European investor sentiment
- Regional Outlook II
- After The Crisis: Slow Recovery, Lower Trend Growth
- With first quarter real GDP growth figures in key emerging Europe economies confirming that the region has entered
- into its deepest recession since the post-Soviet transition, we reaffirm our below-consensus 2009 regional growth
- forecast of -5.6%
Chapter 3: 10-Year Forecast
- The Estonian Economy To 2018
- Trend Growth To Average Much Less In 2014-2018
- Convergence will remain the watchword for the Estonian economy over the long run
- TA BLE: Long-Term Macroeconomic Forecasts
Chapter 4: Special Report
- The Fate Of ???Chindia'
- Overview
- Although China and India will continue to grow during the global recession of 2009-2010, they are not immune to
- the downturn, and face a number of risks in the near term
- China And India SWOT
Chapter 5: Business Environment
- SWOT Analysis
- BMI Business Environment Risk Ratings
- Business Environment Outlook
- TA BLE: BMI BUSINESS AND OPERATIONA L RISK RATIN GS
- Institutions
- TA BLE: BMI LEGAL FRAMEWORK RATIN GS
- Infrastructure
- TA BLE: LABOUR FORCE QUALITY
- Market Orientation
- Table: Europe, FDI Annual Inflows
- TA BLE: BMI TRADE RATIN GS
- TA BLE: TOP EXPORT DESTINATIONS
- Operational Risk
Chapter 6: Key Sectors
- Shipping
- Executive Summary
- Estonia's main port, Tallinn, caters to the country's maritime needs. We expect throughput at the port to decrease
- in 2009, as the global economic downturn hits Estonia's import and export sectors
- Table: Data For The Port Of Tallinn, 2007-2013
Chapter 7: BMI Global Assumptions
- Global Assumptions
- TA BLE: GLOBAL ASSUMPTIONS
- TA BLE: GLOBAL & REGIONAL REAL GDP GROWTH
- TA BLE: DEVELOPED MARKET EXCHANGE RAT ES
- TA BLE: EMERGING MARKET EXCHANGE RAT ES