Central bank cuts growth forecast to 0.7%, MoF rejects allegations of looser budget policy (3)
The Bank of Estonia is forecasting just 0.7 percent GDP growth this year, having predicted 2.6 percent in December.
The central bank moves into the realm of the pessimists alongside SEB, which is forecasting 0.5 percent growth. The Ministry of Finance is on the other end of the scale, predicting 2 percent growth, while the European Commission has forecast 1.9 percent. The OECD has predicted 1.2 percent growth for Estonia.
Deputy Governor Üle Kaasik said the weak growth of last year, which was 0.8 percent, and the year-on-year decline of 1.4 percent in the first quarter of 2014, have had no effect on Estonians yet, while the Ukraine crisis also has had little direct impact on the economy.
“Salaries have risen strongly on the labor market, which has meant good tax revenues,” he said, adding that the Eurozone is recovering, but Estonia's export partners have fared less well.
According to the bank, in the worst case scenario, Estonia should be better protected than it was before the previous financial crisis, as debt levels are lower. The bank is forecasting growth between 3.5 and 4 percent for 2015 and 2016.
Disagreement with MoF
Also in its outlook, the Bank of Estonia said the new coalition had loosened budgetary policy, as a result of which budget balance would suffer both this and next year. It said the budget deficit would start easing only in 2016. "Under the new budget strategy, the goals of the state finances for the years ahead are looser than earlier - attainment of a nominal balance has been postponed and the structural budget surplus - freed of cyclical influences - has been adjusted to a lower level."
Minister of Finance Jürgen Ligi responded in comments to uudised.err.ee, saying he welcomed the criticism but that it was out of date.
"First of all, the Cabinet has already taken measures to improve the budget position and the Parliament is working overtime on this topic just today. Second, we can't talk of a loosening when the state financial management reform has just been pushed through, giving the minister of finance a legal guarantee that he can ensure structural balance or surplus. To this point, we kept a larger buffer largely because of the lack of that guarantee. Third, the last government was the one who gave up that high bar - recall my opposing position in Parliament at year's end and ministers' protests over proposed cuts earlier this year. And fourth, most fundamentally, the worsening economic forecasts must not be a reason for the state taking steps to make the problem even worse unless it happens to be a structural surplus, which it is not."