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Finance Ministry lowers 2017 economic growth forecast to 2.4 percent

The Ministry of Finance presenting its economic growth forecast for 2017. April 12, 2017.
The Ministry of Finance presenting its economic growth forecast for 2017. April 12, 2017. Source: (ERR)

The Estonian Ministry of Finance on Wednesday lowered its economic growth forecast for this year by 0.1 percent to 2.4 percent. Next year's growth is to total 3.1 percent.

"The global economy has developed in a positive direction," Minister of Finance Sven Sester said in a press release. "Demand for Estonia's goods and services abroad is increasing and the growing demand supports our economic growth. The growth of Estonia's exports was a positive surprise last year, as a result of which we can deduce that our companies have retained their competitive ability amid growing wages."

The ministry expects Estonia's economic growth to accelerate to 3.1 percent next year, after which it should once again slow down to 2.7 percent by 2021, it can be seen from the ministry's spring forecast. In coming years, growth will be based on exports, but domestic demand will also provide a strong contribution due to an increase in private consumption and investments.

The average gross salary is to increase to €1,211 this year and €1,272 next year, compared to €1,144 last year. Real growth is to total 2.5 percent this year and 2.3 percent next year. As a result of the progressive income tax exemption system, the real income of people with a low income will increase up to 14 percent, which will also help to increase consumption.

Work ability reform to increase registered unemployment

The work ability reform, the goal of which is to help a large number of people currently not on the labor market find work, will raise the statistical unemployment rate over the coming years. Most people will be registered as unemployed until they find work, which will result in an increased unemployment rate. The rate is to grow to 7.8 percent this year and 8.9 percent next year.

Without taking into account the impact of the work ability reform, Estonia's unemployment rate would otherise gradually drop as the number of employed people is estimated to increase from 644,000 last year to 650,000 in 2021.

Compared to its fall forecast, the ministry increased Estonia's inflation by 0.6 percent to 3.3 percent this year. The ministry expects this year's price growth to slow down next year and reach two percent by 2021. The growth of indirect taxes is to amount to 0.9 percent of inflation this year and one percent next year.

According to the ministry's estimate, Estonia's state budget is to experience a nominal deficit of 0.4-0.5 percent this year, but also a structural surplus of 0.2-0.3 percent. In 2017, the budgetary position is to experience a structural as well as nominal deficit, which should gradually decrease and at times reach a surplus.

Editor: Aili Vahtla

Source: BNS

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