The Estonian economy is on a rise

  • 2000-04-13
  • By Kairi Kurm
TALLINN - The Estonian economic situation can be rated satisfactory and is continually improving but with a much smaller boost than the Estonian Institute of Market Research predicted half a year ago.

"We expected the economy to come out of the crisis much faster," said Leev Kuum, head scientist at market researchers Eesti Konjunktuuriinstituut.

According to 20 experts who participated in the research, the environment for investments and personal consumption should become more advantageous in six months. The volume of exports and imports should also grow. Because of the rise in economic growth and investments, experts expect the balance of the trade deficit to increase from 17 billion kroons ($1 billion) in 1999 to 21 billion kroons this year. The current account deficit of gross domestic product is expected to be around 8 percent.

The experts expect Estonia's GDP in the 12 months of 2000 to grow 6 percent over 1999 and reach 82 billion kroons.

EKI specialists believe that the Estonian economy has good prospects to grow, thanks to a good image among foreign investors, advantageous credit ratings in the banking sector, increasing lending resources and more advantageous interest rates. The interest rates are expected to stay on the same level, or decrease a bit, and the inflation is expected to grow by at least 4.6 percent (annual average) in six months. In 1999 the average inflation rate was about 3.3 percent. All in all the cost of products and services has risen by 6.7 times since the introduction of the Estonian kroon in 1992.

The biggest problems facing the Estonian economy now are insufficient competitiveness, the lack of skilled labor and export barriers. Compared to last year, experts regard problems related to budget deficit and unemployment more important.

Families are discontented

Although the Estonian economy is improving, most of the families do not feel the progress in their family budgets. Their opinion on their economic situation is even worse than it was a year ago. They do not expect any improvements in the near future.

According to Marje Josing, director at Eesti Konjunktuuriinstituut, 60 percent of families make ends meet but are not capable of making any savings, while 13 percent have enough money to save and 12 percent are constantly in debt. In Finland as a comparison, 39 percent make ends meet, 47 percent can save, 8 percent save a lot and 2 percent live in debt.

She said that people with smaller income are more likely to consume products and services of the "illegal economy (black market)" the share of which is about 12 percent of the GDP. Research shows that four people out of 10 prefer illegal products and services to more expensive products and services, which include taxes. Josing said that the illegal economy is most common in car service, needlework and in the sale of products with high excise and trademark taxes. She said that excise taxes on vodka, for example, are higher than the price of vodka on the illegal market.