OREANDA-NEWS. May 23, 2011. For 2011, Nordea is forecasting nearly 6% growth for Estonian economy. The increasing export Nordea is benefitting the recovery of the domestic economy through increase in investments and private spending. According to Nordea’s fresh Economic Outlook prognosis, export will however still remain the main driver for growth for the coming years. The growth outlook for Estonia’s main trading partners – the Nordic countries, Germany and Russia – remains the strongest in the region, reported the press-centre of Nordea.

In the light of the impressive growth figures for the economy and exports, Nordea Estonia’s Chief Economist Tonu Palm says that it is important to build a wider foundation for Estonia’s economic growth. „This year in Estonia we expect a revival of domestic demand from the current low levels, supported by the growth of both investment and private consumption,“ Tonu Palm said and added that the main growth factors for private consumption were an increase in consumer confidence and a moderate rise in income levels.

According to Nordea’s forecast, consumers’ views on the economy have clearly become more positive. At the same time, inflationary expectations are curbing the purchasing power. „The fast recovery of private consumption is being clouded by the weak labour market – high unemployment and big discrepancies in labour demand across different economic sectors,“ Tonu Palm outlined the main risk factors. „The rising share of long-term unemployment and the gap between labour demand and supply are also causes for concern that hamper and slow down the reduction of unemployment.“

Stable foreign demand and increasing profits are giving exporting companies the necessary assurance for investing in additional production capacity, „Countries with a higher increase in industrial output, including the Nordics, are putting a more pronounced effort in investing. To support our export potential, investments have to be increased in Estonia as well,“ Palm said.
The growth outlook for Estonia’s main trading partners – the Nordic countries, Germany and Russia – remains the strongest in the region. Nordea has increased this year’s economic growth and inflation prognoses for both Nordic and Baltic countries. High commodity prices, rise of interest rates and less expansive fiscal policies will, however, set limits to the growth in Europe next year.

Nordea sees the main global economic risk in rising commodity prices that are partially influenced by the crisis in Middle East and North Africa. „The fast growth makes us think that the global economy will be able to handle the higher oil prices and the tightening of economic policies about to occur sooner than expected. We are expecting a 4% global growth,“ Nordea Estonia’s Chief Economist concluded.

Growth in the Baltic States can be characterised through the larger than expected increase in foreign demand and the recovering domestic demand.

Focus in Latvia is increasingly shifting to growth, as the financial markets have remained calm and the budget gap is being closed even faster than required by the IMF/EU. The importance of domestic demand in the recovery is expected to increase gradually. As in all the Baltic States, managing the inflation will be a major challenge. The main contributors to the inflation are food and energy prices, domestic price pressure still remains moderate. Presidential elections will increase uncertainty in the early summer, but the economic recovery is expected to remain intact.
The Lithuanian economy has entered a new growth cycle. The 7% growth in Q1 exceeded expectations. The outlook for 2011 looks good, although household demand is still facing headwinds from the high structural unemployment, weak wage development and accelerating inflation. Like in Latvia, Lithuania has improved its fiscal position faster than planned. Staying on track for 2014 euro adoption will need further budget consolidation from Latvia and Lithuania in the future.

The Russian economy has slowly regained momentum after the shock last summer, with consumers remaining in the driver’s seat in the recovery process in Q1. We expect further recovery in consumption: deposit growth has finally slowed down and consumption is on its way up. Improvement of the labour market situation and rising inflation also drive consumption. Major increase in employment has decreased the unemployment rate below 7%. Company confidence, interest rates and imports of machinery are all supporting the growth of investments. The increase in industrial production has recovered at 5-6%, allowing for an optimistic outlook.

In summary, global economy is on a strong growth track even regardless of the risks (commodity prices, debt crisis). The Q1 slowdown in the largest economy – the US – was probably temporary and the European economy continues with the recovery, even with somewhat uneven growth. Growth in the developed markets is still supported by the Asian economies expected to slow down after the post-crisis momentum.

For the full version of the outlook report, please click:
http://www.nordea.com/sitemod/upload/root/www.nordea.com%20-%20uk/Productsservices/eMarkets/eo_uk0511.pdf?WT.mc_id=777