RIGA - Though the second quarter GDP numbers were better than most had expected, CEO of Nordea Bank Estonia Vahur Kraft says that this leaves little room for excessive optimism, reports news agency LETA. "It is certain that the second quarter results were positively affected by spring and the beginning of summer, when tourism and the entertainment industry become reinvigorated," said Kraft.
He says that it would be better to wait first for the third-quarter results, and only then begin to discuss whether the economy has bottomed. Estonia's economy shrunk 16.6 percent in the second quarter versus the year earlier period, its worst performance in 15 years.
The economy, which expanded an average 8.2 percent annually between 2000 and 2007, has contracted six consecutive quarters after the real-estate bubble burst, with soaring inflation stifling consumer spending and the global credit crisis impacting exports, reports news agency Bloomberg.
The country's unemployment rate rose to its highest level in more than eight years last quarter as the government's austerity measures forced companies and government agencies to cut jobs. The rate is at 13.5 percent, the highest since the first quarter of 2001, and up from 11.4 percent in the first quarter 2009. The number of people out of work rose by 13,000 to 92,000.
East Europe's economies though look poised to start recovering from recession in the second half of this year as key export markets in Western Europe return to growth. Prague-based economist at Wood & Co., Raffaella Tenconi, says that "For 2010, there's definitely mounting evidence that GDP projections will be revised upwards." Eastern Europe's export-reliant economies need a western European recovery to revive their manufacturing sectors and spur job growth.
After Germany and France emerged from their recessions last quarter, prospects have brightened for a resurgence of demand that might help the region's emerging economies expand.
"The economy has adjusted faster and that's good news. It seems that many companies have gotten over their initial shock [of the crisis], have understood that these are new circumstances, and have been able to reorganize their jobs and adjust," says CEO of SEB Estonia Ahti Asmann. The large drop in the Estonian economy was "due to the fact that it was compared to the second quarter last year, before the global crash set in. In that sense it's even more important to look at quarterly numbers," said Asmann. He now says that the important thing is to "think of how to get new growth" from here.
According to Kraft, the fact is that more and more rather positive signals are coming from the global economy, but Estonia should first and foremost observe what is going on in our closest export countries - in Finland, Sweden and other neighbors. Their economic indicators are still bad and there remains concern over their impact on the Estonian economy.
Kraft added that the decision by Standard & Poor's to lower Estonia's state rating is also not something that adds to the optimism. "This decision shows that the outside world still sees us as a problem child, mostly due to growing budget deficits," he noted.
