OREANDA-NEWS. November 24, 2009. The economic forecast Baltic Rim Outlook published by Nordea on Tuesday, November 17, underlines that Estonia’s 2011 accession to the eurozone remains realistic but it alone would not trigger economic recovery, reported the press-centre of Nordea.

„We believe that Estonian budget balance has improved. For 2010, new sources of income have been found and costs have been cut, so fulfilling the accession criteria has become more realistic compared to a few months ago,“ said Sander Klaos, head of the analysis unit at Nordea Bank Estonia.

„Estonia is planning to fulfil the eurozone accession criteria in the first half of 2010. This is a difficult task, as the budget deficit buffer is small, not to say inexistent. At the same time, the Ministry of Finance still has the option of raising taxes or cutting costs of different ministries, should the euro prospects be threatened.”

Klaos added that the euro cannot be treated as the sole hope for economic recovery. The recovery is largely dependent on that of Estonia’s largest export partners. Revival of Nordic economies may provide Estonia a good chance of restoring export volumes.
“Improving economic situation in export markets will serve as an opportunity for Estonia only if companies are able to increase and develop their competitiveness,” Klaos added.

In general, Estonian budget deficit is smaller than that of several European countries and the government has demonstrated the ability to keep the fiscal policy under tight control. For the current year, Nordea is forecasting a -3% budget deficit, which is in compliance with the eurozone criteria. Nordea believes that the plans of joining the eurozone in 2011 remain realistic; however, Estonia also has to consider the possible risk scenario.

Autumn saw a continued recession in the Estonian economy and Nordea’s experts think that the economy will remain weak for the rest of the year; as export demand rises, an improvement may be expected in 2010. Nordea predicts that in 2009, the economy will contract by 14.5%.A sharp rise in unemployment affects households severely, while allowing the workforce to move from less efficient sectors into the more productive ones. By the end of the year, the unemployment rate will reach 14.5%.

Compared with the June Baltic Rim Outlook, the state of several economies has changed considerably and a number of countries are exiting the recession. Although export demand is on its way up, the immediate outlook for the Baltic economies remains weak, mainly due to domestic demand.