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Finance Ministry: Government still planning to support economic growth

Stacks of €10 and €100 bills.
Stacks of €10 and €100 bills. Source: (Leonhard Foeger/Reuters/Scanpix)

Economic growth of 4.4 percent in the first quarter of 2017 is a good result, but the government is still planning on taking steps to support economic growth, Minister of Finance Sven Sester said.

"Economic growth which accelerated to 4.4 percent in the first quarter is a good result and showcases the ability of Estonian enterprises to produce and export as well as the improvement of the business environment of our export partners," spokespeople quoted Sester as saying.

"Faster economic growth increases the economic possibilities and security of Estonians as well as the state," he noted. "Therefore we are planning to take many steps in the near future that support economic growth."

Analysts: Additional incentives may worsen Estonian economy's competitive conditions

While the economic growth of the first quarter was excellent, giving additional incentives to the Estonian economy may actually worsen its competitive conditions, Economic Adviser to the President Heido Vitsur told BNS.

"Although a normal increase was expected, thi specific number was still a pleasant surprise," he said. "As last year our economic growth was hindered mainly by low external demand, then taking into account the general improvement of the European economic environment, we do not have that problem anymore and can expect the continuation of relatively good economic growth in the next quarters as well."

Regarding the feasibility of the possible use of additional incentives, however, Vistur said that the situation on the labor market should be monitored first and foremost when assessing all trends. "If there are not enough employees for additional growth, then additional incentives will be of no use," he said. "However, they can worsen the competitive conditions of our economy."

Nordea Bank chief economist Tõnu Palm said that the state should not stimulate domestic consumption in the condition of 4.4 percent economic growth but instead focus on increasing productivity.

"Companies' revenue will increase thi year —the external environment favors that," Palm said. "The export of both goods and services is experiencing a good growth outlook. A more than three-percent increase in GDP is expected in the second quarter as well. It must be taken into consideration that investments in the first quarter were affected by one-off transactions and a very weak reference base."

According to the Nordea economist, in the current situation, the state should not stimulate domestic demand with loan money and from the sale of assets, but rather move resources into measures of long-term economic growth and increase in productivity. "The gap between wage and productivity increase will remain the same," he added.

SEB: Growth likely to slow in second half of 2017

According to SEB economic analyst Mihkel Nestor, Estonia's economic growth should slow down in the second half of the year, primarily due to a higher reference base.

"In all, we will have strong economic growth in 2017, which will make it even harder for the government to find reasons for additional economic stimulation," Nestor told BNS.

In the first quarter, the most important contribution to GDP growth was made by a strong increase in exports, he noted. According to the analyst, Estonia's economic growth was influenced by a better business environment in the eurozone, as the relative importance of exports in Estonia's GDP is 80 percent and 80 percent of exports go to EU member states.

"While several branches of industry, especially the wood industry, have had successful previous years due to a rapid increase of the Scandinavian construction market, an important change is a recovery of volumes in the industry producing large-scale metal constructions," Nestor said. The Estonian metallurgical industry primarily builds various large-scale constructions and the volume of orders for these depends upon the readiness of customers to make big investments in fixed assets.

"It seems that a higher application of production capacity and more optimistic confidence indicators have finally made foreign customers of the metallurgical industry think abuot investments," he added.

According to Nestor, investments in Estonia increased as well. The only indicator that fell below expectations was the 0.6 percent growth of private consumption, he said.

According to a Wednesday morning press release by Statistics Estonia, Estonia's GDP increased 4.4 percent on year to €5.2 billion in the first quarter of 2017.

Editor: Aili Vahtla

Source: BNS

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