The European Commission in its spring economic forecast published on Friday upheld the 2013 economic growth estimate of 3 percent offered on Estonia in its winter forecast.
Commission leaves Estonia's 2013 growth estimate unchanged at 3 pct
3rd May 2013, 16:32
Please note that the article is more than five years old and belongs to our archive. We do not update the content of the archives, so it may be necessary to consult newer sources.
Estonia's 3.2 percent economic growth in 2012 was supported by robust domestic demand and moderate export growth. In 2013, the forecast real GDP growth of 3 percent is expected to be more balanced and continues converging to its long-term average trend, reaching 4 percent in 2014, the Commission said in its spring forecast of 2013, titled "The EU economy: adjustment continues."
It said risks to the forecast on Estonia appear broadly balanced and mainly related to the external sector.
According to the Commission, sound fiscal policy combined with remarkable adjustment capacity of the economy has supported Estonia's resilience to the sovereign-debt crisis. The Commission's forecast is consistent with the forecast of the Estonian Finance Ministry, which holds out GDP growth of 3.0 percent for Estonia for this year and 3.6 percent for 2014.
The Commission said expectations are that the relatively good economic performance of Russia and the resilience of the Nordic countries to the sovereign-debt crisis will have a positive effect on Estonia's foreign trade. Based on a progressive recovery of Estonia's main trading partners from mid-2013, export growth is expected to continue supporting GDP, with a strong trade surplus in services still largely offsetting a persistent trade deficit in goods. Export growth is seen to boost investments by private enterprises, which will offset the effect from the contraction in public investment as the majority of projects financed through the revenue from the sale of excess greenhouse gas emission certificates will be completed.
Estonia's HICP (harmonized index of consumer prices) inflation is expected to decline further to 3.6 percent for full-2013 from 3.8 percent annual inflation in March, despite administrative changes on Jan. 1 that are pushing prices up: most importantly, increases by 5-6 percent in alcohol and tobacco excises and the full opening of Estonia's electricity market, which has been accompanied by higher transfer fees. In 2014, Estonia is estimated to have an inflation rate of 3.1 percent.
Overall, declining global commodity prices in 2013 and 2014 are assumed to ensure that inflation in Estonia will continue its slow decline. Although core inflation is relatively low, it might soon start increasing as the unemployment rate has already passed below the natural rate of unemployment.
The labor force participation rate remained historically high and is projected to increase further due to the changing age structure. Nominal wage growth is expected to stabilize at around 5.7 percent in 2013 and 6.1 percent in 2014, with real wage growth increasingly positive at 2.1 percent in 2013 and 3.0 percent in 2014.
With strong tax revenue collection and smaller than expected expenditure, the general government deficit was reduced to 0.3 percent of GDP in 2012, considerably better than the deficit of 2.6 percent of GDP initially targeted.
In 2013, a combination of additional one-off factors and increasing expenditure pressures are likely to prevent a further improvement in the budget deficit, which is expected to remain at 0.3 percent of GDP. In 2014, as the effect of these one-off factors fades out, fiscal balance is projected to revert to a surplus of 0.2 percent of GDP.
Net of cyclical and one-off effects, the general government structural balance reached a surplus of 0.2 percent of GDP in 2012 and is forecast to fluctuate around balance thereafter. Contribution to the EFSF and the ESM is the main reason for the 4 percentage point increase in the public debt to 10.1 percent of GDP in 2012. Public debt is forecast to increase marginally to 10.2 percent of GDP in 2013 before it starts decreasing in 2014.