Analysts revise forecast for Estonian economy

  • 1999-08-12
  • By Kairi Kurm
TALLINN - The Estonian eco-nomy will grow a total of 0.4 percent in 1999, reported the Estonian Finance Ministry on August 3 after revising the analysis made in April this year.

Compared with the preliminary forecast, economic growth is expected to be nearly 1.7 percent lower. The consumer price index is expected to rise 3.7 percent in 1999, compared with 4.5 percent in the April estimate. In 1998 the ministry predicted that in 1999 the economy would grow by 4 percent and the consumer price index by 7.2 percent.

"The economy has developed differently from what we foresaw," said Daniel Vaarik, adviser at the Finance Ministry. "We realized this in June, when we noticed that the economy in the second quarter of the year did not grow as much as we had expected."

The initial forecast made by the Ministry of Finance was made without the knowledge of the final size of the budget cuts and the size and sources of the funds to be attracted to fill the budget gap. "Nobody doubts the economy will liven up, but we cannot tell exactly when to expect it to happen. It has not taken place yet," said Vaarik.

Ardo Hansson, a World Bank analyst, told the business daily Aripaev that he expects the eco-nomy to grow by the end of this year and also next year.

"It is good to be conservative and to add costs to the budget rather than cut them down," said Hansson.

Maris Lauri, an analyst at Hansapank, said that the economy has not slowed down since the beginning of the summer and it should grow significantly in the second half of the year. Hansapank also revised its forecast after the statistical department released the economic figures of the first quarter, said Lauri. Hansapank predicts the economy's growth to be below 1 percent in 1999.

According to the statistics department, the gross domestic product dropped by 5.6 percent in the first quarter although most of the analysts, as well as the ministry, do not think the drop was so big. According to the estimates made with the statistics available, the economy slowed down by 2 percent in the first half of the year.

The ministry expects the eco-nomy to grow by 3 percent to 3.5 percent in the second half of the year, according to the new forecast.

The ministry also revised the GDP estimates for the next year and cut the planned volume of next year's state budget by nearly 1 billion kroons ($68.4 million), from 17.7 billion to 16.77 billion kroons.

According to the new forecast the economy will grow by 4 percent to 4.5 percent in the next year, or 1 percentage point less than estimated in April.

Inflation is expected to reach 3.6 percent to 4 percent in the year 2000, compared with 5 percent in the previous forecast released in April.

Hansapank expects a 5 percent to 6 percent increase in GDP and 4.5 percent inflation in the year 2000. The Bank of Estonia is also planning to revise its forecast and cut its GDP growth forecast, which presently stands at 1.5 percent to 3.5 percent.