Rising unemployment to hold back growth

TALLINN - The outlook for economic growth in Estonia this year is improving, but unemployment, which will continue to increase into the second half of the year, will continue to pressure any recovery. Consumption levels won’t increase before 2011, says a Finance Ministry report sent to a parliament committee, reports Postimees.

According to the report from Finance Ministry chancellor Tea Varrak at the Riigikogu budgetary control committee last week, which hinted at the main focal points of the forecast, Estonia’s 2010 economic growth outlook is generally better than thought so far, since the foreign environment and export indicators have improved. Fourth quarter GDP growth was 2.5 percent, as compared to the third quarter, while the year-on-year drop slowed to 9.5 percent, as improving exports and industrial figures at the beginning of this year make the ministry conclude that economic activity is being restored. However, inflation growth is likely to be faster than expected, due to the increase in food and energy prices.

The job market situation is not expected to improve substantially in the near future: the increase in unemployment growth will be higher than expected and, thus, the drop in consumption will be deeper. Wages will also continue to decrease.
Expenditures from the state budget decreased in the January-February period by 3.7 percent, compared to the same period in 2009, which means that expenditures are almost at the same level as last year. The state’s own operating expenses grew slightly, which was caused largely by the cold winter, which drove up heating costs and ice-breaking and snow removal costs. Among social costs, expenditures on pensions and parental benefits grew in the January-February period, while allocations to the Health Insurance Fund decreased.

Weighing on the export-led recovery is overall European growth,  which is “too low,” as the continent may lose its global leading position, worries permanent EU Council President Herman Van Rompuy, reports news agency LETA. Within the EU there are great differences in competitiveness. This is not sustainable in the long term and will be a problem, above all, for the eurozone.

International growth figures now show China rising at a 10 percent annual rate, India at 7.7 percent, the U.S. at 2.7 percent, but the EU muddling at only 1.0 percent. This shows that Europe is losing its position of economic power. These figures must be changed, and Europe needs faster economic growth, says Van Rompuy.
In Europe there are 500 million people, who are among the best-educated and trained in the world, says Van Rompuy optimistically. With only seven percent of the world’s population, Europe produces 22 percent of global wealth. The figures for the U.S. and China were 21, and 11 percent, respectively.