Central Banker: Some Sectors May Suffer From Crisis, But Major Economic Impact Unlikely

(PM/Scanpix)
4/10/2014 1:30 PM
Category: Economy

The deputy governor of the Bank of Estonia says while events could take an unpredictable turn, Estonia should not face major economic losses from the Ukraine crisis.

The official, Ülo Kaasik, told uudised.err.ee the bank was looking at two issues closely.

"First of all, how much [the crisis] will affect foreign demand - demand for Estonian products. And we shouldn't take into consideration only Russia and Ukraine but other trade partners. The rule of thumb is that if foreign demand falls by 1 percent, the Estonian economy will also contract by about one-half percent. The other aspect is how vulnerable Estonian confidence is in the eyes of investors. That could harm Estonia's long-term growth potential," Kaasik said.

"If developments stay on the current footing, the impact could be relatively modest. But if we recall past political crises, it will not mean a general blockade but targeted measures countries take against each other. That could mean that some sectors could suffer but not the whole economy," he said.

He said the food and chemical industry, transit, and tourism could suffer, and said Estonian businesses should be flexible to quickly re-orient to different markets when needed.

Kaasik emphasised that the state should remain flexible, too, by having a backup plan for the state budget. He also said that as it stood, the Russian and Ukrainian economies had lost the most so far in the eyes of investors: "Other countries have not been greatly affected to this point."

But, he said, energy prices were a major question. There is the potential, though unlikely, scenario of dramatic impacts in the case of punitive sanctions.

The daily, Eesti Päevaleht, reported Wednesday that American cruise ship passengers had started to pass on summer plans to visit the region due to the Russia-Ukraine standoff. The Estonian tourism sector was also starting to see a drop in business from Russia, due to the weakening ruble.

Feliks Magus, the head of Nordic Hotels and the Estonian hotel and restaurant association, said: "The general political insecurity worldwide amplified the economic situation on our main target markets and weakens the public's purchasing power. That will in any case have a negative impact on our tourism market, no doubt. The forecasts aren't that rosy."

In 2013, 300,000 Russians stayed in hotels in Estonia, and trend which has been growing at a rate of 10 percent or more a year.


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