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Estonia

In 2011-2012, the economic growth in Estonia was the highest not only among the CEE countries, but also in the entire European Union[1]. At the end of 2013 and in the first quarter of 2014, in contrast to the other CEE economies, GDP growth began to gradually slowdown in Estonia, as it can be observed from the beginning of last year. Despite of the earlier predictions of growth, GDP growth in the first quarter of 2014 fell to -1.1%, which meant the lowest, except Cyprus, the result in the entire European Union.

Investment growth significantly decreased which was influenced by the completion of many projects co-financed from EU funds (including the proceeds of the sale of rights to greenhouse gas emissions in Estonia), declining of the export growth could be seen clearly.

The main cause for the decline in export growth in 2013 and the first quarter of 2014 was similar to that, which was responsible for the dynamic growth earlier, i.e. high sensitivity to the situation in the countries of Eastern Europe, where economic growth as early as 2013 clearly slowed. Participation of former USSR in Estonian exports was by far the largest of any country in the EU. In 2013 it hesitated at 13.2% in Estonia. In 2013 exports to eastern markets fell strongly.

At the same time in Estonia was felt a decrease in demand from the Scandinavian countries, which further contributed to weakening of exports. The growing need to purchase from the other markets, mainly the Eurozone, which has driven growth in exports in other CEE economies, however, failed to fully absorb the weakening of foreign demand in the Baltic countries.

In the first months of 2014, although a slight acceleration was observed in exports to Russia, Estonia and Ukraine, but it only meant a reduction in the scale of its decline and did not have to reverse negative trends in foreign trade. All the time a constant decline was experienced since the trade with the EU countries, mainly among the Baltic countries. It is not likely to increase trade with the countries of the former USSR, as they were stable in the face of the economic crisis, which seems increasingly concerning the economies of Russia and Ukraine.

After an unsuccessful year for investment, next year may indicate an increase in domestic investment and FDI, at the end of 2014, will reach 6.1% rate. This situation will result from the necessity to increase production for export by the Estonian companies. At the same time, again the importance of domestic consumption in creating economic growth begins to decrease. Additional risk to GDP growth may be growing inflation, which will weaken the attractiveness of the Estonian export price. Furthermore, migration trends for Estonia are very significant threat to economic development. Because the people of the same working age flee from Estonia and this process is accelerating little by little. Estonians choose nearby Finland, where income per household is five times larger.

OECD still recommends to strengthen the budgetary and legislative framework. It is necessary to further increase the competitiveness of the domestic market and closer cooperation with Scandinavian institutions in maintaining the stability of the banking sector. According to the 2014’s draft budget revenue for the state is planned to be approx. 8 billion, with 333 million (4.3%) more than last year. Tax revenues are expected to rise by 6.5% while the untaxed income is expected to fall by 8.3% due to lower revenues from the funds. Predictable tax burden in 2014 will fall to 32.1% (0.3% less compared to the current year) - the lowest level in the past six years. The general government debt is to be the 10% of GDP, which is below the EU average. State expenses are subject to increase by 377 million (4.9%) to 8.6 billion euros. Expenditure on investments in 2014 is expected to reach 832 million. In order to activate the construction sector, real estate investments are expected to increase from 10 million to 131 million euro. At the same time it is planned to increase salaries by 5.1% and pensions by 5.8%. It is also assumed that the dividend from the state-owned enterprises will increase approximately 21.5 million euro (mainly from Eesti Loots and Eesti Energia).


[1] average annual growth rate of GDP in Estonia amounted to 6.8% during this period, while for the whole CEE region was 1.9%