OREANDA-NEWS. September 07, 2010. The growth rates of Estonia's monthly industrial output may become smaller in the second half of the year as the reference base effect disappears, but in great probability they will stabilize on a high level, analysts said.

"Strong growth in industrial output is in line with expectations if we consider the reference base, the improved financial conditions worldwide and also increased competitiveness of Estonian companies. Since growth is based on export, developments in the worldwide economy and competitiveness are important. While domestic demand is weak, the picture should get a little better in that regard too after some time," Swedbank economist Maris Lauri told.

She said the growth numbers may become smaller toward the winter as the reference base becomes higher. This does not have to happen, however, because the decline that took place during the crisis still offers a decent amount of room for growth.

SEB Pank analyst Hardo Pajula said the recovery in Estonia seemed to follow the pattern characteristic of small and open economies. That is, after collapsing domestic demand has pulled the economy into a steep recession external demand will slowly pull it out from there.

Pajula said positive influences emanating from the export driven miniboom in manufacturing should gradually start reaching the rest of the economy too. "The retail figures published today that are considerably stronger than before can be viewed namely in that light," he said.

Pajula, too, pointed out that growth rates are likely to suffer as a result of the reference base becoming higher in the final months of the year. "But unless there's a substantial worsening in economic environment, the near future of the Estonian economy even looks relatively favorable now," the analyst added.

Nordea Pank analyst Tonu Palm told that low reference base from 2009 will support Estonian industrial output growth figures until the end of this year. From then on the growth rates will be lower, stabilizing on a high level, however.

Two-thirds of the output of the Estonian manufacturing sector goes for export now, meaning that there is potential for continued growth as the economies of Estonia's main trading partners are estimated to grow about 2-3 percent, said Palm.

"Estonian businesses have unused potential too. In the export sector the level of employment of capacities is at best about 80 percent now," Palm said.

The export figures of Finland, one of Estonia's main trading partners, have surpassed expectations as far as metals and wood go. That indicates that the sectors related to Estonia are boasting solid growth and provide ground for a positive outlook, said the analyst.

The output of Estonia's industrial enterprises in July this year was 25 percent bigger than in July 2009. The moderate growth reported in the first months of 2010 has been followed by a rapid increase - in April enterprises gave 19 percent, in May 17 percent and in and June 21 percent more output than in the corresponding months of 2009, Statistics Estonia said on Tuesday.

Manufacturing output increased 23 percent compared to July last year. Export sales of the manufacturing sector grew an impressive 38 percent.