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Swedbank has raised its economic growth estimate on Estonia for this year from 0.8 percent to 2 percent.
Swedbank raises Estonia's 2014 growth forecast to 2 pct
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Swedbank said it revised Estonia's GDP growth upwards to 2 percent for this year primarily due to the changes in the methodology in previous time series. GDP growth will pick up gradually in 2015-2016 on the back of improving foreign demand as well as investments by nonfinancial corporations. The shortage of labor force will maintain tensions on the labor market, while consumer price inflation will pick up next year.
Swedbank said that weak demand and uncertainty have limited investment decisions by corporations.
«However, we expect that corporations are going to increase their investments in 2015 and 2016. The more positive outlook for investments is supported by the fact that the growth of corporations' loan portfolio has accelerated this year and the capacity utilization rate of industrial corporations has gradually increased. The demand for dwellings supports moderate growth in household investments during the forecast period. The government will invest less, as investments from the state revenue in 2015 and the stock of the EU investment subsidies in 2016 will decline,» it said.
Tensions on the labor market will continue as the working-age population and the number of unemployed will decrease further. That will push up wages even when the general macroeconomic environment and export order books are still weak. The gap between the growth rates of wages and productivity will narrow in 2015-2016 when economic growth will accelerate, according to Swedbank Economic Outlook for November 2014.
Swedbank forecasts the Estonian economy to grow 2.5 percent next year, compared with the forecast of 2.3 percent put forward in summer. In 2016 real growth of the Estonian economy is seen to hit 3 percent.
Nominal GDP will grow to 19.5 billion euros, the current account deficit will expand to 0.6 percent and foreign direct investments (FDI) measured as a ratio to GDP will grow to 4.1 percent this year and decline to 3.9 percent in 2015.