Books on Estonia
Update No: 304 - (28/04/06)
The Baltic tiger; Estonian GDP leaps 9.8 per cent in 2005
Estonia's economy almost reached double-digit growth last year, expanding 9.8
per cent on robust exports and domestic demand. The actual figure, announced by
the Statistical Office, was three-tenths of a percentage point higher than the
Bank of Estonia's estimate.
In the fourth quarter of 2005, Gross Domestic Product (GDP) in current prices
was 42.7 billion kroons, up 11 per cent year-on-year. This, coming after a
decade and a half of rapid growth, is of course a quite phenomenal achievement.
Estonia is bidding fair to become another Ireland, leaping from poverty to
riches in two generations.
By field of activity, GDP growth last year was most influenced by manufacturing;
real estate, renting and business activities; transport, storage and
communication; and wholesale and retail trade, which between them accounted for
61.8 per cent of total value added.
In comparison with 2004, the value added in constant prices increased the most
in financial intermediation, or 29.2 per cent. In the hotel and restaurant
business growth was a brisk 20.4 per cent, in construction 13.6 and in wholesale
and retail trade 13.2 per cent.
Value added decreased in forestry (5.3 per cent), fishery (4.5 per cent) and
agriculture and hunting (0.2 per cent).
Compared to 2004, the ratio of domestic demand to GDP calculated by expenditure
approach at current prices decreased from 106.2 to 103.8 per cent of GDP. The
drop was mostly due to faster growth in exports. Exports of goods and services
grew 21.3 per cent and imports 17.4 per cent.
Meanwhile, the new head of the IMF's mission to Estonia, Franciszek Rozwadowski,
who visited Estonia recently, praised the country's economic growth. In his
words, the results were due to successful reforms, low public debt and
conservative budgetary policy.
Prime Minister Andrus Ansip told IMF officials that the country's finances are
in good order and that the state budget has seen a surplus in the last five
years and the country's debt burden is the lowest in Europe.
The government continues to carry out a conservative budget policy which ensures
a favourable environment for economic development and helps maintain economic
growth, the prime minister said.
The IMF officials advised the government to maintain the budget surplus and keep
public sector expenditure under control. Regarding inflation, which has hexed
Estonia and derailed its hopes of adopting the euro in 2007, IMF officials said
it corresponds to the pace of Estonia's economic development.
The government on March 30th decided to postpone a planned rise in excise taxes
on tobacco, alcohol and gasoline in order not to fuel inflationary processes and
meet the Maastricht criteria for euro adoption.
The government approved the Finance Ministry's proposal to put off the rise
until January 1st 2008. It had been planned to go into effect on July 1st 2006
and Jan. 1st 2007 on separate items.
The measure will reduce inflationary pressure and, according to the Finance
Ministry's forecast, help Estonia meet the price stability criterion for the
adoption of the common euro currency in early 2007.
The measure is expected to reduce the predicted average 12-month inflation rate
by 0.52 percent come April 2007.
As a result, state coffers will fall short 75 million kroons (4.8 million euros)
in 2006 and 535 million kroons in 2007. Meanwhile, according to the Finance
Ministry's spring forecast, extra revenues of approximately 2.8 billion kroons
are expected to flow into the budget this year. Without excise tax hikes, the
extra revenue would still exceed 2.7 billion kroons.
Estonia to miss government's euro-zone target, prime minister says
Estonia is likely to miss its target of adopting the euro as its currency
from next January, news agency RIA Novosti reported, citing the Baltic
republic's prime minister Andrus Ansip.
Ansip said his country would not join the euro zone at any cost, and that
Estonia's high inflation rate was natural, given the country's high economic
growth rate. He is not mesmerized by the success of the euro or of Euroland,
while quietly confident that his own country is doing very well indeed, thank
you very much.
Under the Maastricht treaty a candidate country's inflation rate should be no
more than 1.5 percentage points above the median aggregated level of the three
European Union countries with lowest inflation. This currently stands at about
2.8-3 per cent.
Ansip said artificial methods to restrict inflation in the country, which saw
inflation of 4.1 per cent in 2005, were unlikely to bring positive results.
'Artificial methods to lower inflation may result in a loss of trust in the
Estonian economy and a state budget shortage, and would be an extremely high
price for switching to euro by the previously announced date,' he said.
He said the government was continuing to work on adopting the euro, but added
that the switch would also depend on external factors, particularly oil prices.