Vigorous recovery at hand

TALLINN - Estonia’s economy expanded at the fastest pace in more than three years in the fourth quarter of 2010 on record export growth, reports Bloomberg. Gross domestic product rose an annual 6.6 percent, the biggest increase since the second quarter of 2007, compared with 5 percent in the third quarter, the Tallinn-based statistics office said on its Web site. The median estimate of five analysts surveyed by Bloomberg was 4.7 percent. Output rose 2.3 percent from the third quarter, the biggest jump in more than four years.

The country’s 14 billion euro economy benefited from Swedish and Finnish demand for its electronics and machinery exports by companies including Ericsson and ABB. Exports of goods rose 35 percent last year to a record 8.7 billion euros after declining 23 percent in 2009.
“The GDP numbers confirm the vigorous recovery seen in the Estonian economy last year,” said Annika Lindblad, an analyst with Nordea in Helsinki, in an e-mail. “We expect to see the strong economic recovery continuing in 2011 as the domestic economy also continues to gain strength.”

Accelerating export growth last year was due to production restarts and the creation of new companies, which means sales abroad may slow this year, the Finance Ministry said in an e- mailed statement. Capacity utilization in the industry was about 70 percent in the second half of 2010, the central bank said in a statement.
Full-year growth was 3.1 percent. Manufacturing boosted GDP growth by 4 percentage points in the quarter. Export of goods jumped an annual 53 percent in real terms.

Ericsson’s Estonian unit, which manufactures wireless network gear, contributes 10 percent of the country’s exports and a quarter of the group’s output, Swedish foreign minister Carl Bildt said last month.
Expansion will accelerate to 3.6 percent this year on external demand, the IMF forecast this month. SEB, the second biggest lender in the Baltic countries, last week raised its 2011 growth outlook for Estonia to 4.5 percent from 4 percent. Nordea estimates 4.2 percent growth.

Unemployment, at 15.5 percent in the third quarter, weighs on domestic demand after GDP shrank 5.1 percent in 2008 and 13.9 percent in 2009 as the global credit crunch compounded a property bubble bust. The contraction, deepened by the government’s austerity measures to ensure meeting euro entry terms, was second to only neighboring Latvia in the EU.
“Estonia is a clear example of where the so-called non- Keynesian fiscal consolidation effect occurred,” said Violeta Klyviene, the senior Baltic analyst with Danske Bank in Vilnius. “The positive effect from significant fiscal consolidation outweighed the negative effects on growth from the public spending cuts and tax increases.”