TALLINN - The GDP of Estonia is set to decline by 1.3 percent year-over-year and by 1.2 percent in 2009, according to a fresh forecast by the European Commission.
In 2010 the Estonian economy is estimated to grow 2.0 percent.
The EC is more optimistic in its outlook than the Estonian central bank, which recently published a forecast predicting a negative 2.1 percent growth for 2009.
Annual inflation in Estonia is expected to drop to 4.9 percent in 2009 and down to 3.3 percent in 2010, according to the EC's estimate.
The EC observed that while the boom years were associated with very supportive financial conditions, the needed restructuring will now have to take place in a much less accommodative environment. Coupled with a dim outlook for external demand, this implies a more prolonged readjustment path.
Any recovery in private consumption is unlikely to take place before the second half of 2009, when inflation is expected to abate and indexation of social benefits reinforces consumer confidence.
Prospects of a recovery in investment activity are subject still uncertain, although positive effects are expected from sizeable public sector investments related to the absorption of EU structural funds.
Signs of adjustment in the labor market have become clearer in the second half of 2008 with wage growth becoming more moderate and the unemployment number increasing.
The adjustment is expected to continue with a decline in employment and wage growth throughout the whole forecast period.