SEB gives dire outlook for Estonian economy

TALLINN 's SEB Panka, the Estonian branch of the major Swedish bank SEB, has become significantly more critical in its economic outlook and said that the country is suffering from an economic hard landing.

Ruta Eier, economist at SEB Pank, told a press conference that compared with the previous forecast additional shocks have been revealed both in the Estonian economy as well as worldwide.

The impact from the world economy will reach Estoniaon the full scale next year, she said.

In its fresh estimate published on Tuesday, SEB expects the Estonian economy to contract by 2.2 percent next year, a major revision from the estimate of 1.5 percent growth held out by the bank in its August forecast. The economy is expected to grow 2.0 percent in 2010, according to the new forecast.

An earlier forecast suggested that inflation in Estoniawill drop from 10.5 percent this year to 4 percent in 2009. The new forecast leaves the estimated inflation figure for 2008 unchanged but raises the estimate for 2009 by one percentage point.

Ahti Asmann, CEO of SEB Pank, said that problems of the Estonian real estate sector and the world's financial sector have not been fully exposed in the economy as a whole and that there is a big danger of this happening.

A major problem is posed by the risk of growing unemployment, Asmann said. SEB estimates Estonia's jobless rate to be 5.0 percent this year, 7.0 percent in 2009 and 6.0 percent in 2010.

It estimates public sector deficit to amount to 1.5 percent of GDP in 2008, to 1.0 percent in 2009 and to 0.5 percent in 2010.