TALLINN - The Estonian economy is expected to grow 8 percent this year and a little less than 7 percent in 2006 and 2007, the Bank of Estonia said last week.
According to the bank's estimates, published on Nov. 24, the economy's growth outlooks are good in the near term. The continued rapid rise in incomes, easy availability of loans and overall optimism have created a sound basis for an increase in domestic demand, the bank's survey found.
"On the other hand, a gradual improvement in the outlook of the external environment and rapid integration in foreign trade are ensuring a sufficiently rapid increase in export demand," the survey said.
Bank experts also observed that an improvement in employment data has picked up since the start of the year, and demand for labor has grown amid increased economic activity. As a result, growth in wages and salaries has sped up since the beginning of the year, and year-on-year employment growth is expected to come to 1.4 percent.
Still, the demand is likely to slow down. According to the bank's forecast, the annual increase in nominal wages will accelerate to 11.7 percent this year and ease down in future years.
The bank said that the higher-than-expected inflation has been the result of oil prices, which has prompted an upward revision of the bank's inflationary forecast. The consumer price index is due to reach 4.2 percent this year, 3.4 percent in 2006 and 2.9 percent in 2007.
Meanwhile, Parliament's finance committee approved changes to a bill that will put off introducing a higher fuel duty rate for one year. Pursuant to the existing law, the rate of the excise duty would rise from 690 kroons to 960 kroons per 1,000 liters of combustible liquid from Jan. 1, 2006. Changes approved by the committee will postpone this until Jan. 1, 2007.
The change is necessary in order to alleviate the impact of the higher fuel prices and avoid speeding up of inflation in 2006, parliamentary spokespeople said