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Estonia Business Forecast Report Q4 2008Published by: Business Monitor International Published: Jul. 28, 2008 - 47 Pages Table of Contents
AbstractElevated Risks Of A Hard LandingThe outlook for the Estonian economy and political risk profile is not looking favourable over themedium term. Rapidly decelerating household consumption growth and a forecast eurozone slowdownwill weigh heavily on headline economic expansion. At the same time, spiralling inflation andpublic sector wage and job cuts will elevate the likelihood of strikes, demonstrations and ructionswithin the parliament. We stress though, that the long-term outlook remains largely favourable, with2010 forecast to be the pivotal year for the beginning of a sustained economic recovery. Adoptionof the euro by 2012 and a business environment that remains among the most favourable in theemerging economies of the European Union will ensure that investment inflows remain strong andreal convergence with the eurozone continues. The Estonian government’s policy agenda is likely to remain focused on the decelerating economythrough the medium term. In particular, minimising the deterioration of budgetary dynamics will bea core priority. With fiscal revenue growth likely to drop off dramatically in 2008, we expect PrimeMinister Andrus Ansip to cut social expenditures and freeze public sector wages rather than raisetaxes to address the problem. That said, we do not rule out the possibility of a freeze on tax cutsor even tax hikes beyond this year. There is very little to like about the Estonian economy through the medium term. Tight credit conditionsare likely to continue weighing on household consumption, while declining fiscal revenues willprompt the government to rein in its spending as well. The external sector looks similarly weak,with a marked deceleration in eurozone economic growth expected to negatively impact Estonianexports. We forecast real GDP growth to come in at 1.3% this year and 2.6% in 2009, thereafterrecovering to average 5.5% in 2010-2012. Estonia’s business environment continues to benefit from the effective enforcement of contracts andproperty rights, including intellectual property, as well as a streamlined and efficient bureaucracy.The government maintains a very receptive approach to foreign firms, and has created a veryliberal trading environment. Companies operating in Estonia benefit from access to a relativelyskilled workforce, with low union membership and propensity to strike. However, migration flowshave reduced the number of skilled individuals and has contributed to the tightening of the labourmarket. Get Full Details About This Report >> |
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