Editorial: bursting the hope bubble

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Ministry of Finances has cut this year’s economic growth forecast for Estonia. Instead of the 3.6 per cent growth predicted in September, the ministry now expects a growth of 2.0 per cent. Behind the changes, there lay the shrinking expectations regarding export partners.

If we could take the fresh forecast for granted, Estonian entrepreneurs and public sector could still breathe a sigh of relief. Two per cent of growth is no crisis. This is a decent tempo of growth, among other things exceeding the 1.2 per cent growth published by European Commission, in February, regarding the eurozone. For comparison’s sake: Finnish ministry of finance only predicts 0.5 percent growth this year.

Even so, the situation in near neighbourhood makes one think that even the cuts are too optimistic.

Firstly, the forecast considers not events in Ukraine and the cooling of relationships, after annexation of Crimea, between Russia and the West. Should the European Union enforce serious economic sanctions upon Russia (which, so far, have mostly remained oral), the latter are sure to hit back. The effect upon Estonia would be immediate, as also via the Western nations who for us are important trade partners but for whom Russia is one weighty partner as well.

Such scenario has been labelled «risk scenario» by finance ministry. In that case, Russia might even go into recession, Estonia’s GDP growth would be slashed by half again – to one percent. The events of recent days – putting it mildly – show no encouraging signs of neighbourhood tensions soon to ease.

Overall, European outlook has lately been treated with cautious optimism. Recently, the EU economy/finance commissioner Olli Rehn recently told Postimees of «moderate recovery» and «encouraging signs». Unemployment, said Mr Rehn, is supposed to have peaked out and about to drop in several states. Even added the pre-elections coefficient to what Mr Rehn said, Europe’s generally improving outlook is the backdrop that keeps us from falling into outright economic pessimism.

Secondly, the question also arises: in the light of the cut forecasts, what do we say about the new coalition’s costly promises regarding benefits and wage rise? In this fresh forecast by finance ministry, the coalition treaty has not yet been considered. Hopefully, end of April will bring a clearer picture of Estonia’s new budget strategy. Even so, the moment of truth will come in the fall, latest – with 2015 budget draft bill.