EC: Debt Crisis Could Seriously Damage Estonia (1)

Published: 10.11.2011 16:39

Commissioner Olli Rehn introduced the new economic forecast on Thursday.
( Photo: Reuters/Scanpix )

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The European Commission warned today that Estonia's sensitivity to changes in foreign trade render it vulnerable to the Eurozone debt crisis.

Having released a fresh economic forecast on Thursday, the commission said falling exports could damage Estonia's economic outlook and budgetary situation, forecasting higher growth than previously predicted for 2011, but lower growth for 2012.

Estonia's economy will grow by 8 percent this year and 3.2 percent next year, according to the forecast. Next year's forecast is .2 percent above what the Finance Ministry forecasted.

Although Estonia is better off than it was in 2008, decreasing foreign demand and rising insecurity will further inhibit consumer and investor confidence, the commission said.

The EC forecast expects a 1.8 percent budget deficit for Estonia next year, compared to the Cabinet's 2.1 percent. The balanced budget has in recent years been aided by one-time sources of revenue, chiefly the sale of carbon credits, the commission said.

Overall, the EU economy is predicted to grow by 0.5 percent next year; however, the commission's vice president, Olli Rehn, warned of a new potential recession.

 

Ott Tammik

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  • avatar

    knut_albers

    11.11.2011 09:57

    This quarter and the first two quarters next year, we have to expect the economy to cool down, but for the second half of 2012, the situation may improve again for Estonia. This also, because all the 5-year term loans/ leasing contracts concluded prior the initial crisis in 2007/2008, are expiring. So the private debt portfolio should improve quite a lot next year and there should be more room for domestic demand again, even in case the exports remain static. Until then, the private debt burden is simply to high that there is much room to improve the domestic demand in compensation to the faltering exports that is quite in line with the widely common company price policies in Estonia in the recent years, where the desperate attempts are made to increase profits through price increases instead of higher volumes.