Estonian economy estimated to grow no more than 2.5 percent in 2020

Swedbank head economist Tõnu Mertsina. Source: Swedbank

Estonia's economy is not expected to grow more than 2.5 percent in 2020, analysts for banks SEB and Swedbank said on Tuesday. Swedbank estimated a 2.4 percent increase and SEB predicts a 2 percent rise.

Swedbank expects the Estonian economy to grow 2.4 percent this year, a rate 0.3 percentage points higher than the estimate put forward by the bank in November.

The bank left its GDP growth forecast on Estonia for 2021 unchanged at 2.5 percent, it appears from the fresh Swedbank Economic Outlook.

Consumption by households is expected to grow 2.5 percent in 2020, 0.2 percentage points faster than the forecast offered in November. The forecast for 2021 was left unchanged at 2 percent.

The Estonian consumer price index meanwhile is expected to rise 2 percent this year according to the fresh forecast, compared with the November forecast of 2.3 percent. The forecast for 2021 was lowered by 0.1 point to 2.1 percent.

The estimate concerning the rate of unemployment for 2020 was lowered from 5.1 percent to 4.9 percent, while the estimate for 2021 was left at 5.4 percent.

The forecast concerning the rate of change in employment for this year was maintained by the bank at 0 percent, whereas next year a reduction by 0.2 percent is expected to happen.

The export of goods and services is seen to grow 3 percent this year, 0.5 percentage points less than the estimate offered in November. The estimate for 2021 was cut from 4.6 percent to 4 percent.

The estimate concerning growth in the imports of goods and services was lowered by the bank by 0.7 percentage points to 3 percent for 2020 and by 0.4 points to 4.6 percent for 2021.

The GDP growth estimate on Latvia meanwhile was raised from 2 percent to 2.2 percent for 2020 and from 2.5 percent to 2.7 percent for 2021.

The forecast on Lithuania was moved up 0.6 percentage points to 2.6 percent for 2020 but cut by 0.2 points to 2.4 percent for 2021.

SEB predicts 2 percent growth in 2020

SEB analyst Mihkel Nestor said in a new forecast published on Tuesday the Estonian economy is expected to grow 2 percent this year and 2.6 percent in 2021.

Nestor said in the longer run, a lot of uncertainty and differing opinions remain when it comes to the outlooks of the global economy.

"Powerful interference by central banks in the course of the economy has brought global debt to a record level. According to one camp there is no reason to be concerned because due to extremely low interest rates, the debt burden as a ratio to GDP will also decrease in an environment of slow economic growth. In the estimate of others, we cannot predict the behavior of economic players and at one point the record debt burden coupled with a bubbling of debt prices may end in an unprecedented disaster," the analyst said. 

"Europe continues to be characterized by very different wellbeing of the service and industrial sectors. Although the free fall in confidence indicators has come to a halt, the industrial sector, especially in Germany, is troubled by very low demand. On the other hand, the labor markets of almost all eurozone countries are in a very good state, which supports growth in the service sector and domestic consumption," Nestor said. 

He said where average economic growth in the euro area is expected to be in the region of 1.2 percent in both 2020 and 2021, in Germany that figure will lower for at least this year.

"As Estonia and the whole region here is connected with Germany in the first place, not other large countries of the euro area, this will overshadow growth also in our country," he said. 

Economic growth for Estonia's most important trading partners, Finland and Sweden, will not increase in 2020 and 2021 either, Nestor said.

"Sweden's GDP will increase according to the forecast by SEB by just 1.1 percent this year. Estonian businesses have reason to look toward that market a bit more optimistically, however, as the decline of the construction market there is being replaced by a cautious rise and an acceleration can be seen also in private consumption," he said.

"In Finland, just like in Estonia, confidence indicators have been significantly more negative than actual economic statistics. The economy there should grow by a stable 1.5 percent this year and next year alike, on the back of moderate domestic consumption as well as export growth," Nestor said. 

"Estonia has thus far managed to ignore all signs of a pending deceleration in economic growth. The economic growth of nearly four percent in 2019 was again among the fastest in Europe, making for a beautiful ending to the golden decade during which Estonia's nominal GDP practically doubled. Regardless of this, a repetition of the same kind of success in 2020 is difficult to see. The confidence indicator of industrial enterprises has reached its lowest level in the past 10 years, predicting a halt in the export growth that we used see," he said. 

Looking at the domestic economy many factors behind growth have lost their strength, according to the analyst. 

"Employment has reached a maximum while registered unemployment is growing, which holds back growth in private consumption. Investments meanwhile are held back by the insecurity of industry and an apparently pending cooling of the construction market," he said.

"On the upside, last year already showed as well that the small IT sector of Estonia managed to make a very big contribution to economic growth. In addition to information technology, the economy is supported by innovative businesses also from several other sectors. Under the effect of contradictory influences, the Estonian economy will grow 2 percent this year, whereas in 2021 the realization of second pillar savings will speed up economic growth to 2.6 percent," Nestor said. 


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Editor: Helen Wright

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