Estonia Business Forecast Report Q1 2013

Estonia Business Forecast Report Q1 2013 - new country guide report published

Companies & Markets

01.01.2013 15:38:58 - Estonia Business Forecast Report Q1 2013 - a new country guide report on

( - The consumer will become an increasingly important driver of growth over the coming years as households recover from the severe downturn in 2008/09. The recovering external environment in 2013 will help to boost growth further as the negative contribution to real GDP from net exports falls.

Estonia´s current account surplus will gradually shrink over the coming years before turning into a


mild deficit in 2014. This will come as a result of income outflows increasing in line with the rebound in economic growth and corporate profits, while increased imports widens the merchandise trade account. A continued strong surplus on the services account will preclude a steeper fall in the surplus.

The recent rise in food and energy prices combined with relatively strong domestic consumption will see to it that consumer price inflation ticks higher over the remainder of 2012. However, our Commodity team´s expectations for commodity prices to ease in 2013 will balance with recovering economic activity to produce moderate inflationary pressures.

Major Forecast Changes

We have revised down our growth forecast in 2012 and 2013 to 2.4% and 3.0% respectively from 2.7% and 3.2% previously. This downgrade comes as a result of the persistently deteriorating external environment, particularly in the eurozone and Russia which will weigh on Estonian exports and feed through to relatively weaker consumption through H113.

Our forecast for Estonia´s fiscal position has been revised to -1.3% in 2012 from -2.3% previously and to -0.8% in 2013 from -1.7% previously. Better-than-expected tax revenues in the first half of 2012 is behind these revisions.

We now forecast to post a current account surplus of 0.8% of GDP in 2012 rather than 3.0% as a result of weakening export dynamics which will expand the merchandise trade deficit in 2012. However, in 2013 we now expect a surplus of 0.2% of GDP rather than 2.3% previously as corporate revenues increase and income repatriation picks up in line with the improving economic outlook.

Key Risks To Outlook

As a member of the eurozone, Estonia remains highly exposed to the sovereign debt crisis, an intensification of which would have a deleterious impact on Estonia´s macroeconomic outlook.

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