Country Report Estonia 1st Quarter 2016

Country Report Estonia 1st Quarter 2016


Outlook for 2016-20



  • The centre-right Reform Party was returned to office in March 2015 as part of a three-party coalition government. The Economist Intelligence Unit expects the administration to last its full term to 2019.
  • Migration and security will dominate the policy agenda at EU level over the short term at least, following the emergence in 2015 of mass immigration into Europe and a large-scale terrorist attack in Paris.
  • There is a strong chance that EU sanctions on Russia will be extended again in July 2016 and that Russia will respond in kind. This will weigh on Estonian agricultural producers but speed up trade reorientation away from Russia.
  • We still consider Greece's departure from the bloc to be more likely than not in the medium term. Estonia will continue to position itself as part of the fiscally responsible core, alongside Germany.
  • Estonia's strong public finances could allow for some strategic fiscal loosening in 2016, eroding the budget surplus. Thereafter, we forecast that the budget will remain close to balance for the rest of the forecast period.
  • A weak third-quarter performance has led to a revision in our estimate for real GDP growth in 2015 to just 1.3%, from 2% previously.
  • In 2016 flat average global oil prices will support domestic demand growth, and further euro weakening could help to boost sales in the main markets outside the euro area. We forecast average annual growth of 3.3% in 2017-20.
  • We estimate average consumer price deflation (national measure) of 0.4% in 2015. Thereafter, inflationary pressure will come from major import partners, as well as from a broad weakening of the euro.


Review



  • In late December 2015 the EU again decided to renew for six months its economic sanctions on Russia.
  • In the first three quarters of 2015 the budget recorded a small surplus, of around EUR20m, compared with a surplus of EUR25m a year earlier
  • In early December the European Central Bank (ECB) cut its deposit rate by 10 basis points, to -0.3%-a much more modest intervention than expected.
  • In July-September household spending growth slowed unexpectedly, taking real GDP growth to just 0.7% year on year.
  • The pace of deflation abated again in November 2015, and in early January 2016 the euro exchange rate stood at US$1.08:EUR1.
  • In January-September 2015 the current-account surplus rose to US$430m, compared with a surplus of US$70m in the same period in 2014.


Country Report Estonia 1st Quarter 2016
Highlights
Outlook for 2016-20: Political stability
Outlook for 2016-20: Election watch
Outlook for 2016-20: International relations
Outlook for 2016-20: Policy trends
Outlook for 2016-20: Fiscal policy
Outlook for 2016-20: Monetary policy
Outlook for 2016-20: International assumptions
Outlook for 2016-20: Economic growth
Outlook for 2016-20: Inflation
Outlook for 2016-20: Exchange rates
Outlook for 2016-20: External sector
Outlook for 2016-20: Forecast summary
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

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