Ministry predicts Estonian economy will grow in 2009

  • 2008-08-27
  • From wire reports
TALLINN - The Ministry of Finance released cautiously optimistic figures this week, predicting Estonia's economy will grow 2.6 percent in 2009.
This is a big drop from previous growth predictions of 6.4 percent, but is still more positive than the current state of the economy shows. Figures for August, as reported in The Baltic Times, show that the Estonian economy shrank for the second  quarter of this  year and that the Estonian economy is now in recession.
In its spring forecast, the ministry expected the economy to grow 3.7 percent 2008 .

Some analyst thinks the ministry is too optimistic in its assessment of the economic outlook.
"There are no reasons to assume that the new economic forecast would sing a different tune than the recent economic indicators," said anonymous official told Eesti Paevaleht.
Other analysts believe that the ministry figures are about right.
"Our forecast is more optimistic… The course of development presented by the Finance Ministry is quite possible," Hansabank analyst Maris Lauri told BNS.

The Bank of Estonia did not wish to comment on the Finance Ministry forecast on Aug. 25. The central bank  releases its opinion of the situation of the economy and its outlooks Aug. 27, as The Baltic Times went to press.
Financial experts say the government needs to cut next year's budget by another two billion kroons to meet the shortfall in loss of earning from taxes. This means that total budget cuts for 2009 would amount to over 11 billion kroons.

The shortfall has created a real headache for government financial planners who had promised tax cuts to the public. The government's calculations had been based on the forecast that the country will collect 96.3 billion kroons (6 billion euros) in taxes and other revenues. But Finance Minister Ivari Padar admitted Aug. 22 that the previous forecasts were wrong. 
Padar told reporters in late August that while the current planned budget for 2009 is 96.3 billion kroons, the new detailed budget would be only 94 billion.
Padar said that the whole tax policy would have to be revised in the name of additional incomes.
"It is clear that nothing can be added to the present limits, and even dreaming of it has to be forgotten," Padar told Postimees.

By some reports, the state is staring at a budget deficit already this year, since tax revenues have been falling faster than expected.
Meanwhile, the forecast for next year's inflation has risen. This spring, the figure was 5.3 percent, but according to revised predictions, inflation will speed up to 10.7 percent this year, then to slow to 6.0 percent in 2009 and to 3.6 percent in 2010.

The ministry blames the global credit crisis for the state of the domestic economy.
The slowing economy is expected to have an effect on unemployment numbers, as well. The ministry of finance expects demand for labor to decrease and for unemployment to rise 5 percent in 2008 and 6.3 percent in 2009.

Salary increases are expected to slow, but only to nominal growth rates of 15.4 percent 's still way ahead of predicted inflation.