Nordea increases Estonia's economic growth outlook by 0.6 percent

Nordea Estonia chief economist Tõnu Palm.
Nordea Estonia chief economist Tõnu Palm. Source: (Postimees/Scanpix)

In its latest estimate, Nordea Bank expects Estonia's GDP to grow by 3.1 percent this year, up 0.6 percent from the 2.5 percent estimate in its previous economic outlook in March.

Estonia's GDP growth in 2018 is estimated to hit at least 2.7 percent.

According to the latest Nordea economic outlook, Estonia's growth is again outperforming the eurozone average and is set to become more broad-based.

"Even though the Estonian economy is waking up from hibernation this year, it is too early to reap the benefits," Nordea chief economist Tõnu Palm said on Tuesday. "Considering longer-term challenges such as the aging of the population and a modest level of productivity, the more robust growth numbers of the previous two quarters give no reason for excessive optimism."

They key to longer-term growth in Estonia's well-being lies primarily in private sector investments and productivity gaining momentum. Under conditions of low unemployment, Estonia will be growing faster than its long-term growth ability this year.

Palm said that more important than the rate of growth is the enlivening of export and investment. While private consumption has recovered fast, investments lag about 25 percent behind precrisis levels.

There are several indications for a better outlook concerning the external environment, such as increased demand from Estonia's foreign trade partners, the eurozone's economic confidence indicators hitting their highest levels in six years as well as subdued price increases in the eurozone that are favoring low interest rates. While the global economy and industry are recovering as well, the primary risks today are geopolitical risks and the migrant crisis.

As an open economy, in addition to restored activity of the branches of the economy catering to the internal market, Estonia first and foremost needs a structural shift toward export and investments, which would raise its long-term capability for growth, according to Palm.

Editor: Aili Vahtla

Source: BNS

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