Estonia May Struggle to Meet Budget Targets as Growth Slows in Scandinavia

Photo: Reuters/Scanpix
8/16/2013 12:40 PM
Category: Economy

As the economies of Sweden and Finland, Estonia's biggest export partners, continue to be weak, critics wonder whether Estonia will be able to meet its state budget targets at the end of the year.

While Estonia recorded an annual GDP growth of 1.3 percent in the first quarter and 1.5 percent in the second quarter, the government has based its 2013 budget on a forecast of 3 percent growth, reported ETV.

Nevertheless, the Finance Ministry has said that nominal GDP growth has only been slightly off its predictions and that tax revenue has met expectations.

Still, SEB private banking strategist Peeter Koppel said a wider European recovery cannot yet be expected, despite the fact that the Eurozone saw growth (0.3 percent) for the first quarter in over a year and a half, in Eurostat figures released on August 14, and Germany exited its, as Koppel put it, "recession."

"Nothing has improved structurally or in the long-term. Unemployment is at a historical high and the debt crisis continues. It is clear that managing a state in this fashion in many European countries is not sustainable and Germany will not be able to keep it afloat. Estonia's low growth figure reflects the fact that our export partners are no longer doing that well,“ Koppel said, adding that Europe's economies are lagging partly due to the slowing growth of developing countries.

In one year, Estonia's exports to Sweden and Finland have decreased by 14 and 8 percent.

The head of the Finnish-Estonian Chamber of Commerce, Sami Seppänen, was pessimistic about Finnish prospects.

"If you look at January through April, the trend is quite depressing. The economy slowed more and more abruptly each month and now in May and June there was a minor positive spike upwards," he said.

He said the Finnish economy is facing a global challenge while Estonia, although dependent of its northern neighbor, has regional challenges.

On a positive note, he said, Estonia may actually have something to gain from the cooling of the Finnish economy.

"A big part of Estonia's exports are subcontracted, whether directly or indirectly, and to some extent the workforce as well. I think that if the Finnish economy continues to cool, companies will need to become even more competitive, and that could in turn grow demand for Estonian subcontracting and Estonian exports,“ Seppänen said.


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