TALLINN – Economic growth in Estonia has slowed considerably since this time last year, though it is not yet cause for concern, according to Olev Raju, the chairman of the parliament's finance committee.
At this time last year, the Estonian gross domestic product (GDP) was growing at approximately 11 percent. That growth has slowed to approximately 6 percent, said Raju, with the slowest growth of 2 percent coming in the last three months. The chairman was using figures by the Statistical Office of Estonia that have not yet been released to the public. However, Raju emphasized that he was not overly concerned that there would be a continued decline in the growth of GDP.
"Of course 2 percent is less than 11 percent," said Raju, "But I'm not very nervous. I'm very optimistic."
Both Raju and Lauri Luiker, senior economist with the Eesti Pank policy department, agree that a slowing in the growth of GDP is not necessarily a bad thing. Figuring out exactly what is a sustainable level of growth for Estonia is a tricky question. Estonia is considered an emerging market economy and emerging markets tend to grow at much faster rates than economies in Western Europe where a 2 percent growth in GDP is quite common.
"In an emerging economy, a sustainable level of growth fluctuates," said Luiker. Large levels of growth such as 11 percent are quite normal in a countries such as Estonia but aren't usually sustainable over the long term. While Raju is not happy with the 2 percent growth for the periods of April, May and June, he agrees that an 11 percent growth rate is not realistic either.
"We can't be as super-optimistic as we were a year ago," Raju believes. "It was very profitable to play in the Estonian stock market last year. Now it's not so profitable."
Many people in Estonia have come to expect large improvements in the economy as being inevitable and Raju warns that this is not so. Many in the economic sector need to get used to smaller levels of growth in the future.
Raju cited the collapse of Maapank earlier this year as one of the reasons for the decline in growth. Many Estonians, worried about the security of their money, have withdrawn it and are keeping it at home.
Another reason for the slowdown in growth of GDP was that foreign investment in Estonia is not as high as 1997 levels. Foreign investment was very high in 1997, almost double 1996 levels, and that contributed to the high growth in GDP for that year.
The turbulence in the Asian markets has had an adverse effect on foreign investment in Estonia, according to Luiker. "Estonia is very much dependent on foreign income," said Luiker.
That foreign income is not as plentiful as it once was and is coming at a higher cost than just a year ago. Raju said that he would only be seriously worried about the Estonian economy if GDP growth remains around 2 percent and that it's too soon now for any type of government intervention.