Bank of Estonia cuts 2016 economic growth forecast to 1% ({{commentsTotal}})

Rait Roosve, head of the Cash and Infrastructure Department, introducing the new 50-euro note at the Bank of Estonia. Photo is illustrative. Source: (Siim Lõvi/ERR)

The Bank of Estonia said on Tuesday that it has cut Estonia's economic growth forecast for 2016 by 0.8 percent to one percent.

The bank estimates Estonia's GDP growth will total 2.6 percent next year, a 0.3-percent decrease from its June forecast, while in 2018 it is still epected to reach three percent.

"Estonia's economic growth this year is to be the slowest following the economic crisis," the central bank stated in its commentary, noting that one of the reasons behind this is the decreased demand of trade partners which has reduced the growth potential of the manufacturing industry and exports.

"The main reasons behind this year's weak economic growth are problems within certain industry branches — difficulties in the oil shale industry and the energetics sector as well as a decline in added value," said the bank.

Over the past three years, the decline in investments has also reduced the economy's growth potential in the following years. Previous assessments of the Estonian economy's growth potential were around three percent, the central bank said.

While in June the Bank of Estonia forecast Estonia's inflation to total zero this year, according to its fresh forecast inflation has grown to 0.2 percent. Next year, inflation is projected to total 2.8 percent while a year later it is expected to reach 2.4 percent.

This fall saw the end of the period of price decline which lasted for more than two years and inflation has begun to accelerate, the bank said in its commentary. "As a wage decrease is occurring at the same time, the growth of retail sales and private consumption will slow down," it noted.

While in 2015 Estonia's average gross salary increased 5.9 percent and is forecast to grow 7.3 percent in 2016, in 2017 and 2018 the bank expects Estonia's average wages to increase 5 percent per year.

According to the central bank's forecast, the unemployment rate is to come in at 6.8 percent in 2016 but increase to 8.2 percent next year and 9.8 percent in 2018. In 2015, unemployment totaled 6.2 percent.

The budget of Estonia's government sector is likely to experience a deficit in the next three years, the bank also noted. The nominal deficit is to total 0.4 percent in 2017 as well as in 2018.

The Bank of Estonia's forecast also includes those policy measures of Estonia's new government coalition which had been described in enough detail by the time the forecast was drawn up.

Editor: Editor: Aili Vahtla

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