Analytics, Economics, Estonia, Financial Services, GDP

The new GDP estimate by the central bank is 1.8% for 2016, 2.9% for 2017 and 3% for 2018.

Compared with its December forecast, the Bank of Estonia cut its estimate for this year by 0.4 points and the estimate for 2017 by 0.2 points.

The economic growth of Estonia will accelerate this year and in the next two years as a result of an improved external environment and higher productivity. Demand on the part of trading partners has been growing in the past six months at the previously forecast rate and available data suggests that the momentum of growth will continue, the central bank said.

In the near term, higher productivity per employee will allow economic growth to speed up, because the number of hours actually worked by full-time employees has declined temporarily in anticipation of improvement in demand. In the longer term growth can be ensured only by investments and developing of employees, which should be supported by an economic policy favoring growth and promoting competitiveness on the level of the state and the businesses alike.

The Estonian government sector budget will remain close to balance in the coming few years. Pressure may arise in the coming few years, however, to limit public sector expenditures should the government plan to increase investments, which have been postponed so far, simultaneously with a deceleration of economic growth and a resulting reduction in tax inflow.