Hopeful Signs For Estonia’s Economy

More encouraging signs for the future of Estonia’s economy can be gleaned from a report from Edward Lucas’ blog on the Economist website. The article focuses on the rapid growth in industrial production, citing lastest figures of 31.1 % year on year growth in industrial production as being particularly noteworthy.

This is of course an important indicator; however Estonia’s recovery to date has largely been export-driven. A report by Maris Lauri and Annika Paabut from Swedbank, which the Economist blog also links to, sets out forecasts for the economy in a broader context. Their predictions are, it has to be said, encouraging, and include a GDP growth rate of as much as 4.5 per cent for 2011 and 2012, a gradual fall in unemployment to 12.5 per cent in 2012 (currently just under 18 per cent) growth in investments, growth in household consumption in single percentage points (this actually fell by 18.4 per cent in 2009 according to Swedbank’s figures!) and a possible governmental balanced budget by 2014. Inflation is forecast to hover around the 3-3.5 per cent mark over the next couple of years, probably as much as 4 per cent over the coming winter, the report says.

Naturally as adoption of the Euro draws closer the implications of this are on the minds of many. It seems likely that the new currency will bring with it some benefits; part of the criteria for joining are the reduced bank reserves required by the Euro Zone, from 15 per cent to two per cent (this process is to be carried out in stages and has in fact already begun). This additional liquidity however is mostly likely to be absorbed by the banks redeeming loans or building up some reserves of their own.

But perhaps most perspicacious is Mr Lucas’ observation that of all the member states of both the EU and NATO, there is only one which as of January 2011 seemingly actually adheres to all the rules of both organisations – Estonia!

The full report from Maris Lauri and Annika Paabut is here. See also Swedbank’s publications page here.

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