OREANDA-NEWS. September 02, 2011. According to Nordea, Estonian economy will grow by 7.5 per cent this year but the uncertainty and slowdown in the global economy will limit the growth by half next year, to only 3.6 per cent. Nordea’s fresh economic forecast Economic Outlook still states that the economies of Estonia and other Baltic states have toughened up in the past crisis and are managing, for now, to resist to the negative influence of the external environment, reported the press-centre of Nordea.

 „The pace of the recovery of Estonian economy during the first half of the year has clearly exceeded expectations and we expect the annual growth to reach 7.5%. The main factor behind the success has been export growth related primarily to the manufacturing industry. Despite significant slowdown in global manufacturing, the growth outlook for Estonia’s main trade partners – the Nordics, Russia and the Baltics – has remained decent,“ Nordea’s Chief Economist Tonu Palm said.

According to Chief Economist Palm, the local economy is, however, not immune to the global slowdown; with the elevated inflation rate it is one of the two main risks going forward. Due to the influence of the external environment, Nordea forecasts that next year’s growth will remain at 3.6%.

Despite the relatively high expected inflation rate of 5% and expected unemployment rate of 12.5%, as well as the spread of negative influence from the external economy, private consumption is expected to make a robust recovery in Estonia. Global inflation pressure will ease before the end of the year and this will help to cool down inflation in Estonia, improving the outlook for consumption. Consumption growth will also be supported by moderate growth of wages.

Nordea believes that all Baltic economies will demonstrate solid growth this year but together with the global slowdown, these economies will slow next year as well. „We are not expecting a new steep crisis in the Baltics but a slowdown in growth. Today, domestic economies are able to compensate the weakness of external markets to some extent. According to our baseline scenario, the US and Eurozone economies will not contract and the growth in Estonian export markets will recover in 2013. From the point of view of internal consumption, it is important to sustain the confidence in the real sector and not overreact to external influences,“ Tonu Palm explained.

Like in Estonia, export-based growth of Latvia and Lithuania has been a positive surprise and will depend in the coming years on the extent of the decline in external markets.  Improved consumer confidence and declining unemployment are supporting domestic demand, which should continue to back Latvian economy. Lithuania’s fast-pace growth will slow down somewhat next year but reaccelerate in 2013.

Consumption and growing household credits are in the driver’s seat in neighbouring Russia; unemployment has come down to 6%, supporting private consumption. Contrary to the global trend, investment growth is expected speed up in the second half of the year. The biggest risk to the economy would be a slide in oil prices. 

Although Russia, Poland and the Baltic states are fairly resilient to a short-term global downturn, a major drop in external demand would not remain without consequences. Risk of an economic downturn in the US and Eurozone is growing and nearing 50%. Nordea’s baseline scenario is now factoring in very low growth in these areas until the end of 2013. In big economies, the risk scenario may be triggered by low confidence and cautious view of the future by consumers and companies.  The main risk in the Eurozone lies in the debt crisis.