Editorial: economy afloat

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In spring, finance ministry set this year’s Estonian real terms GDP growth at 2 percent. Yesterday, they issued a figure more realistic – 0.5 percent. Figuratively speaking, this year our economy keeps afloat – the nostrils, at least, above water. And that’s basically all. Beholding the neighbouring economies, not much hope any would assume the role of an engine to be pulling us along.

The ministry keeps up optimism regarding 2015, expecting a growth of 2.5 percent. Still, even this is down by a percentage point since spring. From then on, the growth is supposed to speed up – should the yesterday’s figures be trusted.

Nothing surprising in Estonian (and other European) growth expectations being pushed further into the future. For us, the insecurity in broader European geopolitical backdrop is the direct kind; in EU-Russian relations, sanctions are no longer a threat but reality and though the impact may not be felt short term, excessive optimism is better kept in check with predictions – even if overall impact of Russian food ban indeed remains as low as we are being convinced.

Reading further in finance ministry forecast, this year’s inflation is untraditionally low – year-on-year, prices are rising 0.3 percent. Which means that in Estonia price rise has slowed down and is nearing the eurozone average. And, recalling the European Central Bank aim to keep price rise at approximately 2 percent in mid-range perspective, and considering that ECB has already applied considerable effort to overcome the super low inflation, such a situation in Estonia is not helping growth in Estonia either.

Meanwhile, GDP expectations aren’t the only basis for Estonian budgeting. The coalition is in no hurry to forsake the wage rises vowed next year. In the coalition, the choices of principle were agreed in spring already, and the currently lower forecasts were quite in the air. Definitely, this will not mean such a downhill plunge as in the fall of 2008 before the big crisis.

Still, the planned budget balance keeps being delayed: now, this is expected in 2016. And the 2015 deficit will probably be bigger than this year.