Bank of Estonia's more optimistic forecast based on faster economic growth

A queue outside a phone store.
A queue outside a phone store. Source: Siim Lõvi /ERR

The Ministry of Finance said the Bank of Estonia's most recent forecast, published on Tuesday, is more optimistic than its own report from April due to faster-than-expected economic growth.

The Bank of Estonia's second quarter forecast said this year's state budget deficit will remain at 3.4 percent of GDP and it will fall to 1.7 percent next year and 1.3 percent in 2025.

The ministry's forecast was significantly different. It suggested the deficit will grow to 4.3 percent of GDP this year — €1.7 billion — and is expected to be 4.2 percent next year.

Kadri Klaos, head of the State Finance Department of the Ministry of Finance, told ERR the differences come from the Bank of Estonia's faster-than-expected economic growth. 

"Nominal GDP growth in 2023 is now significantly higher than in the Finance Ministry's spring forecast. The difference between 2023 and 2025 is close to a billion euros each year. Perhaps the economy will cool down this year, but less than previously forecast," he said.

Due to rapid economic growth, the bank has also forecast higher tax revenues.

Klaos said this mostly explains the deficit reduction.

"From 2024 onwards, the positive impact of the recently adopted tax laws will be added to the difference in the budget balance," she said.

The ministry will publish its summer economic forecast on August 24 which takes into account the new tax rises agreed upon by the government


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Editor: Karin Koppel, Helen Wright

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