SEB Downgrades 2012 Economic Forecast
A leading bank has shaved half a percentage point off its Estonian economic growth forecast for next year, but maintains that Eastern Europe will take a softer hit than the rest of the continent
SEB said on October 5 that growth would be 3 percent, a change from late August, when it called for 3.5 percent.
Three percent growth matches the current forecast from the Finance Ministry.
Still, Estonia will be hit harder in relative terms than Latvia and Lithuania, as export has been driving Estonian economic growth far beyond the level of its southern neighbors in recent quarters.
SEB also said there is the possibility of a worse scenario given how the continent's sovereign debt crisis appeared to be worsening.
"Considering how the situation of the Eurozone's banking sector is becoming more worrisome with each passing day, the way that events will actually play out may prove significantly worse," said the analyst for SEB's Estonia unit, Hardo Pajula.
That echoes the sentiment from SEB Group, which said in its Eastern European Outlook on October 5 that the 3 percent growth "is certainly not too pessimistic an estimate."
The risk scenario from the Finance Ministry - if the EU and US are unable to prevent a new recession - calls for 1 percent growth.
SEB said it expects growth for the current year to be 6.5 percent. If export starts tapering off, the bank said, there is no reason to hope that internal demand will revive and make up the shortfall in the months ahead.
And while the official version is that prudent management of reserves and averseness to government borrowing helped see Estonia through the 2008-2009 recession, Pajula warned that Estonia was kept liquid by assistance from Brussels.
"Going by how donor state budgets are coming under increasing pressure, it can be presumed that in the more distant future, this source will start drying up," he said, adding that if the EFSF happens to call in the 2 billion euros that Estonia has pledged, the country's payment balance could face a "very complicated situation."
Kristopher Rikken