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Estonia Country Risk Report Q2 2016

Estonia Country Risk Report Q2 2016

Core Views

Rising external demand will help accelerate GDP growth in 2016,boosted by an improving outlook for inward investment. While privateconsumption will remain an important driver of production, increasinginflation following the euro's depreciation in 2015 will weigh on thiscomponent as a share of overall GDP.

Estonia's fiscal deficit will narrow slightly across 2016 thanks toprudent expenditure and increased revenue collection. The budgetgap that remains will not be a cause of concern for either investorsor the government, thanks to a low public debt burden, sufficientforeign reserves, and a likely return to a budget surplus in 2018.

Increasing loans to non-financial corporations and improving GDPgrowth with trade partners will increase both imports and exportsin Estonia in 2016. Although this will lead to a marginal increasein the country's current account deficit, it will remain manageable,financed by robust inbound FDI.


Executive Summary
Core Views
Key Risks
Chapter 1: Economic Outlook
SWOT Analysis
BMI Economic Risk Index
Economic Growth Outlook
Brighter Outlook Ahead After Difficult 2015
Rising external demand will help accelerate GDP growth in 2016, boosted by an improving outlook for inward investment. While private
consumption will remain an important driver of production, increasing inflation following the euro's depreciation in 2015 will weigh on this
component as a share of overall GDP.
GDP By Expenditure Outlook
TABLE: GDP GROWTH FORECASTS
TABLE: PRIVATE CONSUMPTION FORECASTS
TABLE: GOVERNMENT CONSUMPTION FORECASTS
TABLE: FIXED INVESTMENT FORECASTS
TABLE: NET EXPORTS FORECASTS
Fiscal And Debt Outlook
Prudent Policy Keeps Budget Deficit In Check
Estonia's fiscal deficit will narrow slightly across 2016 thanks to prudent expenditure and increased revenue collection. The budget gap
that remains will not be a cause of concern for either investors or the government, thanks to a low public debt burden, sufficient foreign
reserves, and a likely return to a budget surplus in 2018.
Structural Fiscal Position
TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES
External Trade And Investment Outlook
Nothing To Fear From Deeper Deficit In 2016
Increasing loans to non-financial corporations and improving GDP growth among trade partners will increase both imports and exports
in Estonia in 2016. Although this will lead to a marginal increase in the country's current account deficit, it will remain manageable,
financed by robust inbound FDI.
Outlook On External Position
TABLE: CAPITAL & FINANCIAL ACCOUNT BALANCE
TABLE: TOP FIVE GOODS EXPORTS IN 2014
TABLE: TOP FIVE GOODS IMPORTS IN 2014
Monetary Policy
ECB: Underwhelming But Still Substantial Easing
The European Central Bank (ECB)'s monetary policy easing on December 3 disappointed markets in terms of its depth and breadth.
However, strengthening economic and inflation conditions in the eurozone suggest that the ECB may be better off holding fire, and in
our view, the easing is still fairly significant despite disappointment on the headline figures.
Chapter 2: 10-Year Forecast
The Estonian Economy To 2025
Trend Growth To Average Lower In 2016-2025
Trend average growth in Estonia is forecast to average 2.9% between 2016-2025, well below the 7.6% from 2001-2007. That said, we
stress that the worst effects of the 2008-2010 recession are now past and the economy is well positioned for sustainable long-term growth.
TABLE: LONG-TERM MACROECONOMIC FORECASTS
Chapter 3: Political Outlook
SWOT Analysis
BMI Political Risk Index
Domestic Politics
Relations With Russia Remain Prominent
Despite some signs that relations are improving, tensions with neighbouring Russia will continue to dominate Estonia's political
landscape in 2016. The issue of Russian aggression will remain at the heart of the debate surrounding Estonia's foreign policy and
domestic political landscape.
TABLE: POLITICAL OVERVIEW
Long-Term Political Outlook
Few Risks To Structural Stability Over Long Term
Estonia is among the most structurally stable countries in emerging markets, as reflected in its very high 84.8 (out of 100) Long-Term
Political Risk score. Having fully converged to all major multilateral European institutions (European Union, European Monetary Union
and Schengen Agreement), Estonia will continue to benefit from a strong policy anchor and high degree of institutional capacity over the
long run.
Chapter 4: Operational Risk
SWOT Analysis
Operational Risk Index
Operational Risk
TABLE: DEVELOPED STATES – LABOUR MARKET RISK
TABLE: DEVELOPED STATES – LOGISTICS RISK
TABLE: DEVELOPED STATES – CRIME AND SECURITY RISK
TABLE: DEVELOPED STATES – TRADE AND INVESTMENT RISK
Chapter 5: BMI Global Macro Outlook
Global Macro Outlook
Unfinished Business In 2016
TABLE: GLOBAL ASSUMPTIONS
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %
TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, %
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %
TABLE: ESTONIA – MACROECONOMIC DATA & FORECASTS

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