SEB Pank has curbed its economic growth estimate on Estonia for 2013 to 3.3 percent from the forecast of 3.8 percent published in March.
SEB lowers Estonia's growth forecast to 3.3 pct
21st May 2013, 18:30
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According to the fresh SEB Nordic Outlook that came out on Tuesday, Estonia's gross domestic product (GDP) will grow 3.7 percent in 2014. The same rate of growth for 2014 was held out in the forecast issued in March.
SEB expects inflation to remain subdued in Latvia and Lithuania. It will also fall in Estonia but remains at a relatively high level above 3 percent. Estonian consumer prices are seen to grow 3.3 percent in both 2013 and 2014, according to the European Union harmonized approach. Also these figures are unchanged from the March forecast.
"Consumption is the main thing that we can count on to be the engine of the economy this year," SEB Pank macro analyst Ruta Arumäe said at the presentation of the SEB Nordic Outlook.
"One factor is that inflation will move lower and consumption will thus be able to grow faster," she said. Real wages are estimated to grow 2 percent in Estonia this year.
Arumäe said that deceleration of inflation has definitely helped to increase optimism in consumers. Relative strength of consumption may continue until global oil prices will start to rise again. "Then our inflation will grow – that is the main inflationary risk, I don't see any inflationary risks among domestic factors."
The reduction in Estonia's GDP in the first quarter compared with the final quarter of 2012 in all likelihood was a one-off phenomenon, according to Arumäe. "My opinion at this point is that the decline in the first quarter was a one-off, by all means there should not be a very big additional impact from the construction sector's decline in the second quarter," she added.
"We didn't get a lot of information about the first quarter: whether that decline was caused by a bigger decline of the construction sector or a greater weakening of the rest of the economy," said Arumäe. "We do not have that information now, but indicators tend to suggest increased cyclical activity."
Arumae said that while on the basis of this economic activity should grow in quarter-over-quarter comparison in the coming quarters, "a decline cannot be ruled out because changes in the external environment could exert a bigger effect than we have anticipated so far."
Demand by the private sector probably will not be able to make up for the decline in public sector investments made using money from the sale of carbon emission credits and consequently the fall in the construction sector will be quite big this year, Arumae said.
"In the past 3-4 months, the European Commission's business and household sentiment indicator has kept climbing in Lithuania but fallen slightly in Latvia and Estonia. The downturn in the latter countries is closely related to the global slump and to manufacturing. Household optimism remains more robust," the SEB Nordic Outlook says.
SEB ranks Estonia among low risk countries of the eurozone alongside Germany, Finland, the Netherlands, Austria and Luxembourg. Of the nine risk factors only two -- political risk and the fact that the net investment position is negative -- are seen as high.
Cyprus, Greece, Spain, Italy and France are seen having the same level of political risk as Estonia. Ranked as countries with low political risk are Finland, the Netherlands, Ireland, Luxembourg and Malta, with the rest of the eurozone members estimated to have medium political risk.
In Latvia, SEB expects GDP to grow 3.5 percent and in Lithuania 3.2 percent this year.