MoF Economic Forecast Drops to 1.5% ({{commentsTotal}})

Finance Minister Jürgen Ligi (left)
Finance Minister Jürgen Ligi (left) Source: Photo: ERR

The Finance Ministry has released a fresh economic forecast, downgrading its GDP growth prediction to 1.5 percent, down from 3 percent in the spring. Next year's figure remained at 3.6 percent.

"It is more likely that the decline already occurred during the first half of the year and now there is a trend of improvement,“ Finance Minister Jürgen Ligi said at a press conference today.

"But the decline that already took place will certainly leave a mark on next year as well,“ he said.

Economic growth fell bellow expectations in the first half of the year - at 1.1 percent in Q1 and 1.3 percent in Q2.

Halfway through the year, the state budget deficit was at 0.5 percent of forecasted annual GDP. Still, Finance Ministry fiscal policy deputy director Sven Kirsipuu said the deficit was lower than expected. Weak economic growth will not necessarily reflect in tax receipts, he explained.

The nominal budget deficit predictions are 0.2 percent for 2013, 0.6 percent for 2014 and 0.8 percent for 2015. Then, in 2016, the ministry hopes to reach equilibrium, and a surplus is expected for 2017. The structural budget, which discounts one-off and temporary factors, is already slightly in the black.

Fast-paced income raises are expected to continue, at an expected annual rate of 6 percent. Ligi said that public sector pay raises will be a priority of this year's budget.

Meanwhile, inflation is predicted to slow. The annual forecasts are 3.2 percent for 2013 and 2.7 percent for 2014.

Next year's state budget will be drafted based on today's forecast. The government began budget talks last week.

Also last week, Estonia's two biggest banks offered their own forecasts. Swedbank and SEB predicted growth figures of 1.9 percent and 1.5 percent for the year.