Analysts: EU will boost economy

  • 2001-07-12
  • Kairi Kurm
TALLINN - Some leading Estonian analysts believe that joining the European Union will boost the country's economy thanks to economic assistance programs and an increased inflow of foreign investments, according to a recent poll. Economic growth would also be accompanied by increases in wages and pensions and falling unemployment.

The poll was conducted by the European Union's Information Secretariat in June and questioned nine economic analysts from banks and government institutions.

According to forecasts, the average annual real-growth rate of Estonia's gross domestic product will be 5.8 percent and the yearly growth of foreign investments will reach 7.1 percent between 2005 and 2010 if Estonia joins the EU in 2004.

Unless the country joins the EU, annual GDP growth will average 4.1 percent for the same period and the inflow of foreign investments will grow by 4 percent.

But Maris Lauri, an analyst at Hansapank Markets, believes that accession to the EU will have relatively little effect on Estonia's economic growth or wages this decade. She said growth would come later. Lauri predicted 5 percent growth for both scenarios.

She was also pessimistic about any strong inflow of foreign investments.

"Estonia isn't the only country driving for EU membership. The more countries there are, the more difficult it is to attract investments," said Lauri.

She believes that Poland, because of its size and proximity to larger EU countries, is more attractive.

She predicted that investments would grow by 6.1 percent annually until 2004 and by 5.5 percent afterward if Estonia joins the EU or by 4.5 percent if it doesn't.

Other analysts predict faster price rises for Estonia when it joins the EU.

"When Estonia joins the EU, the rate of inflation could actually increase, because our price levels are much lower. In open market conditions the price convergence could take place faster than outside the EU where the price increases would be smaller," said Sven Kunsing, head of market research at the Union Bank of Estonia.

Marje Josing, a researcher at the institute of economic research Eesti Konjuktuuriinstituut, says that Estonians should not fear rising prices because the price levels in Estonia are already similar to those of many EU members. The prices inside the EU vary by 50 percent to 60 percent, she added.

"There's a common opinion that Estonian agricultural products are cheap, but they're actually on the same price level as EU products," she said. Josing said that Estonian farmers should not dream of increasing prices. The income of EU farmers is higher thanks to subsidies.

"Our research shows that the prices at Tallinna Kaubamaja are similar to those at a German supermarket," said Josing. "Estonians already spend too much on food. They spend one-third of their income on food, which is way more than in the EU."

Kunsing said that better growth prospects for Estonian companies would boost incomes, which would support the growth of private consumption. According to forecasts, the average monthly income should reach 11,600 kroons ($622) between 2005 to 2010 if Estonia joins the EU and 10,200 if it does not. The average income is currently 5,098 kroons. Long-term loan interest rates should also drop to 7.1 percent if Estonia gets into the EU and increase to 8.2 percent if it doesn't.