Bank of Estonia lowers economic growth forecast to 2 pct

Eesti Pank

PHOTO: Teet Malsroos/Õhtuleht

The Bank of Estonia lowered its December forecast of the gross domestic product growth from 3 percent at constant prices to 2 percent.

The central bank estimates next year's economic growth at 4.2 percent and at 4.3 percent for 2015. Nominal GDP is projected at 17.9 billion euros in 2013, 19.2 billion euros in 2014 and 20.7 billion euros in 2015.

In the previous forecast released in December the central bank predicted that GDP will grow 3 percent at constant prices in 2013 and 4 percent in 2014.

Inflation is expected to slow down this year and stop at 3 percent. Price rise will ease up in the years to come, the central bank said, predicting 2.5 percent inflation for the next year and 2.7 percent for 2015.

The December forecast put the annual inflation at 3.6 percent for 2013 and 2.4 percent for 2014.

Unemployment is seen to reach 9.2 percent this year, decrease to 8.8 percent in 2014 and drop to 8.5 percent in 2015.

The Estonian economy has adjusted to the post-crisis situation in the last three years and become less vulnerable, the central bank said. An important adjustment has taken place in the loan portfolios of households and companies which have decreased immensely in relation to GDP. Further signs that the economy is better balanced are the small current account shortfall and the almost balanced government budget, the central bank said.

Regardless of reduced imbalances and decreased vulnerability, it is important for both the public and the private sector to be prepared to deal with the risks emanating from a weak external environment, the central bank said. The main threat to Estonian economy is flimsy growth of export demand.

To ensure continuing economic growth it is important for investments to be channeled into boosting productivity and for favorable borrowing conditions not to be accompanied by underestimating of risks.