Analyst: weak Europe means weak Estonia

  • 2003-06-21
  • Baltic News Service

Weakness of the euro zone will not benefit Estonia in the longer term, Hardo Pajula, an analyst at PricewaterhouseCoopers Advisers, said last week.
The relatively poor state of the European economy seems to have been good for Estonia's economic growth in the short term at least, but in the longer perspective this need not be so, Pajula said.
"Slow economic growth and the threat of deflation have forced the European Central Bank to keep interest rates low, and thus the price of money is at present as low as never before in Estonia, too," the analyst said.
"Growth of lending arising from this has boosted domestic demand. The gap [between GDP growth and growth of demand] has never been so wide."
Due to the small size of the Estonian economy, domestic demand is a very unstable motor of growth.
In the longer perspective export problems arising from Europe's slow economic growth and amplified by the strengthening of the common currency will rise to the fore, Pajula said.
A PricewaterhouseCoopers report on economic outlooks of euro-zone countries published on June 5 predicts only 1 percent growth for the area this year and holds out hope of a recovery to 2 percent next year provided the world economy emerges from the crisis.
The short-term outlook of the euro zone is even more pessimistic.
Germany's economy - the euro zone's largest economy - will expand by no more than 0.25 percent this year, the report said. The average economic growth of France, Italy and the Netherlands won't exceed 1 percent. In Britain and Spain PwC expects growth of 2 percent.
Economic growth in those countries should according to advisers' main scenario reach 2 percent - 2.5 percent in 2004, provided the world economy climbs out of its crisis during the next 12 months.