Finance ministry expected to lower growth forecast

The Ministry of Finance expects foreign demand to replace consumer demand as the main driver of GDP growth. (Siim Lõvi /ERR)
9/2/2016 5:07 PM
Source: BNS
Category: Business

The Finance Ministry’s summer prognosis will likely lower Estonia’s economic growth estimate for the current and the next year by 0.5% to 1.5 and 2.5% respectively.

The growth forecasts could still change depending on more detailed gross domestic product figures for the second quarter, to be released by Statistics Estonia. The Finance Ministry will present its fresh economic forecast on Sept. 15, spokesman Armo Vask told BNS.

The ministry has lowered the prognosis because the economic environment has not improved as much as was expected, and the outlook of Estonia's trading partners has worsened.

The growth of domestic consumption, which in recent years has driven the Estonian economy, is expected to slow down this year and the next owing to accelerating inflation and the smaller impact of one-off factors. The ministry expects consumer prices to rise by 0.2% this year, and 2.7% in 2017.

The ministry predicts a marginal drop in employment as well as persistent wage pressures.

According to the forecast, exports of goods and services will increase by 2% this year, and export growth will accelerate to 3.4% next year.

The 2016 budget deficit is expected to amount to 0.2% of GDP, or €39m. The ministry projects a shortfall of 0.8% of GDP for 2017, which is 0.3% more than anticipated in the fiscal strategy. The government sector is expected to achieve a budget surplus again in 2019.

Although the budget position of the Health Insurance Fund will improve by €3m in 2016-2017 compared to the spring forecast, the fund is expected to be running a €31m deficit this year as a result of which the position of social insurance funds will worsen compared to the spring prediction.

Editor: Dario Cavegn

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