Economy at standstill

Tõnis Oja
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Illustration: Allikas: statistikaamet

In third quarter, Estonian economy grew a mere 0.4 per cent. Read: standing still, basically. The last time growth was that low was in 1st quarter 2010, at the end of economic crisis. Then, GDP shrunk by three percent.

Post-crisis, our fastest growth came in first quarter of 2011, as Estonia switched to euro. From there, it has been downhill, fast.

At the start of 2013, our economists were quite optimistic. As late as this spring, the forecasts pointed towards three to three-and-a-half. Even with predictions related to chief trading partners far from rosy, the Estonian economy was always painted a lush oasis amid deserts all around. 

Then came a kind of a shock: one after another, centres of analysis started to slash their prognoses, by half and even more. 

True to traditions of today, the powers that be reacted by denial. After OECD became the first to drop this year’s forecast to 1.5 per cent, Prime Minister Andrus Ansip said the organisation was using a simple algorithm.

«OECD uses a simple algorithm into which 1st quarter economic growth is entered; and it is this very algorithm producing such results,» the Prime Minister told Vikerraadio, on May 31st. «By and large, even after the initial 1st quarter economic growth number came out, the all-year forecast was not altered too much,» he added.

By now, all analysts have sharply lowered this year’s economic growth forecasts, finance ministry included. According to the latest analysis, European Commission lowered it by more than a half – from the earlier 3.0 per cent to 1.3. 

According to Heido Vitsur, economist at LHV, the 2013 growth will remain under 1 per cent and analysts will have to further cut their forecasts. 

«By today, it is quite clear that, in second half of the year, there will be no upturn, as expected; those who, at the end of summer, predicted a growth of more than a percent, will have to correct downwards once more,» Mr Vitsur told BNS.

«As, in October, the negative trends continued, the fourth quarter will hardly be stronger than the third, wherefore a negative result should come as no surprise,» he added.

According to SEB economist Ruta Arumäe, the slowdown resulted from significant decrease of exports, in third quarter; in goods the fall was ten percent, services included (in real prices): three percent. Ms Arumäe said the main engine is still retailing, which shows stable growth. 

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