Estonian GDP leaps 9.8 percent in 2005

  • 2006-04-05
  • From wire reports
TALLINN - Estonia's economy almost reached double-digit growth last year, expanding 9.8 percent on robust exports and domestic demand. The actual figure, announced last week by the Statistical Office, was three-tenths of a percentage point higher than the Bank of Estonia's estimate.

In the fourth quarter of 2005, gross domestic product in current prices was 42.7 billion kroons, up 11 percent year-on-year.
By field of activity, GDP growth last year was most influenced by manufacturing; real estate, renting and business activities; transport, storage and communication; and wholesale and retail trade, which between them accounted for 61.8 percent of total value added.
In comparison with 2004, the value added in constant prices increased the most in financial intermediation, or 29.2 percent. In the hotel and restaurant business growth was a brisk 20.4 percent, in construction 13.6 and in wholesale and retail trade 13.2 percent.

Value added decreased in forestry (5.3 percent), fishery (4.5 percent) and agriculture and hunting (0.2 percent).
Compared to 2004, the ratio of domestic demand to GDP calculated by expenditure approach at current prices decreased from 106.2 to 103.8 percent of GDP. The drop was mostly due to faster growth in exports. Exports of goods and services grew 21.3 percent and imports 17.4 percent.
Meanwhile, the new head of the IMF's mission to Estonia, Franciszek Rozwadowski, who visited Estonia last week, praised the country's economic growth. In his words, the results were due to successful reforms, low public debt and conservative budgetary policy.

Prime Minister Andrus Ansip told IMF officials that the country's finances are in good order and that the state budget has seen a surplus in the last five years and the country's debt burden is the lowest in Europe.
The government continues to carry out a conservative budget policy which ensures a favorable environment for economic development and helps maintain economic growth, the prime minister said.
The IMF officials advised the government to maintain the budget surplus and keep public sector expenditure under control. Regarding inflation, which has hexed Estonia and derailed its hopes of adopting the euro in 2007, IMF officials said it corresponds to the pace of Estonia's economic development.

The government on March 30 decided to postpone a planned rise in excise taxes on tobacco, alcohol and gasoline in order not to fuel inflationary processes and meet the Maastricht criteria for euro adoption.
The government approved the Finance Ministry's proposal to put off the hike until Jan. 1, 2008. It had been planned to go into effect on July 1, 2006 and Jan. 1, 2007 on separate items.
The measure will reduce inflationary pressure and, according to the Finance Ministry's forecast, help Estonia meet the price stability criterion for the adoption of the common euro currency in early 2007.

The measure is expected to reduce the predicted average 12-month inflation rate by 0.52 percent come April 2007.
As a result, state coffers will fall short 75 million kroons (4.8 million euros) in 2006 and 535 million kroons in 2007. Meanwhile, according to the Finance Ministry's spring forecast, extra revenues of approximately 2.8 billion kroons are expected to flow into the budget this year. Without excise tax hikes, the extra revenue would still exceed 2.7 billion kroons.