Analytics, Economics, Estonia

This means that 2009 would economically be the worst-ever year since Estonia regained independence in 1991; during the last major economic crisis in 1999 Estonian economy fell only 0.3% year-on-year.

As to positive trends, inflation is expected to fall; moreover, the economy is envisaged to revive in 2010. Average forecast for the consumer price index in 2009 is 3.6%. Estonian Central Bank predicts it is to diminish in case if the price of oil remains at the current level.

Another positive expectation concerns share prices. Analysts think that the Tallinn Stock Exchange index would increase 26% in a year to 347 points. A year ago the index stood at 739 points.

Average expectation on unemployment rate for 2009 is 9%. This is about twice more than only a few months ago. The worst year in Estonia's near history was 2000 when unemployment stood at 13.6%.

"There are two factors – global liquidity crisis and the development of our key export markets in the EU – that will be important in terms of economic growth in 2009," said Erki Kert, the Head of the Analysis Department of an investment bank LHV. "The first is important in restoring banks' confidence to issue new loans and review the economy."

"It will be a tough year," agreed Gert Tiivas, Baltic area manager of East Capital. "Banks are reluctant to issue loans and risk margins increase faster than Euribor falls."

The expert said that it will be a suitable situation for carrying out necessary, but painful reforms.

"Companies continue to cut costs and reduce production volumes. Unemployment is also likely to go up because of Estonians who return to home after having worked abroad for years," Kert noted.

"The most important issue for the Estonian economy today is availability of loan capital," said Kristjan Lepik, head of Tarkinvestor.ee. "I believe that banks will not be issuing significantly more loans before the decline on the real estate market comes to an end."