Central bank predicts GDP growth

TALLINN - The Bank of Estonia forecasts a 5.5 percent growth in gross domestic product (GDP) for this year, and that the consumer price index will increase by 4 percent, according to the last quarterly monetary policy roundup presented by the bank at a press conference on Oct. 3.

The roundup is based on a bank survey on several political and economic issues that affect Estonian economy.

Marten Ross, head of the central bank policy department of the Bank of Estonia, said the GDP growth is due to export.

"Apart from that, even for the 5.5 percent scenario the government has to create appropriate conditions for the private sector of economy, and that is within its powers," he added.

The Estonian Institute of Economic Research's Leev Kuum predicts the growth trend will continue the next several years as well. However, the amounts of export should remain the same to make the tendency stable.

Commenting on the economic situation in Estonia, Kuum said that not everybody will feel the growth, however.

Furthermore, people are not satisfied with the situation, according to surveys of the institute.

"Consumer attitudes (that was relatively positive this June) towards Estonian economics became more pessimistic," said Marje Josing, director of the institute.

Still, enterprises gave a positive opinion of the situation during the last quarter.

One of the most important things that affect consumers' behavior is their expectations of the inflation level, according to Josing.

"The inflation, temporarily rising under foreign pressure, is sometimes overestimated, and that may change consumers' attitudes," said Andres Saarniit, the bank's economic policy department head.

Regarding the other problems that affect Estonian economy, Kuum said the lack of a competent and professional labor force is causing the most serious economic difficulties in the country and in both Europe and North America.

According to the bank's public relations arm, the EU referendum recently held in Denmark and IMF conference in Prague may make all the EU candidates revise their conception of EU accession.

Ross said the results of the Danish referendum would have not an economic but rather a political effect on Estonia. "The opposition of EU enlargement may use the Danish experience as a tool for rejecting other candidates," explained Ross.

The bank has emphasized several times that the process of European integration has a certain effect on the economy of the country and the stability of monetary policy in particular.

Another widely discussed business topic, advance on petroleum at the world market, will have a delayed effect on Estonian economy, according to the roundup.

"The trends in Estonian economy are typical to all Eastern European countries, including Latvia and Lithuania," concluded Ross. (See related article on page 12.)