From Bloomberg recently:
Estonia Revises Down Economic Growth to 9.8 Percent
Estonia, the European Union's second fastest growing economy, revised down its economic growth rate in the first quarter to an annual 9.8 percent as the property market cooled and export growth slowed.
The pace of growth was revised from the preliminary estimate of 9.9 percent released May 15, the Tallinn-based statistics office, Statistikaamet, said on its Web site today. The annual rate was the slowest in two years. The Baltic country's economy grew a revised 10.9 percent for the previous three months.
``Domestic demand weakened mainly due to slowing investment growth, even as the warm winter benefited construction,'' Maris Lauri, the chief economist with Hansabank Markets, said in e- mailed comment. ``The worst hit came from modest export growth and continued strong import rise.''
The $15.1 billion economy is poised for a ``soft landing,'' according to the central bank, after rising house prices and higher interest rates slowed growth in the property market in the first quarter and banks including the Baltic region's biggest lender AS Hansapank set stricter mortgage lending criteria.
Unemployment at a 15-year low and a 20 percent increase in wages during the first quarter are still boosting spending power and pushing up inflation, which stood at 5.7 percent in May and forced the government last month to postpone its target for meeting euro-adoption criteria to 2011.
May Overheat
Estonia's inflation and widening current account deficit, at 14.8 percent of GDP in 2006, increased worries among foreign investors and credit agencies earlier this year that the Baltic economy may overheat, similarly to that of neighboring Latvia, and trigger a sharp decline in the growth rate.
``Strong consumer demand coupled with a slowdown in export growth means the external balance is likely to have worsened this quarter,'' Neil Shearing, an economist at Capital Economics in London, said in e-mailed comment. ``We want to see signs that consumption is starting to ease before signaling the all clear on overheating.''
The Finance Ministry said it expected the economy to slow further in the second quarter because order books in construction are declining, retail and service industries are forecasting lower revenue growth and consumer optimism has ``slightly'' declined. A ``consumption boom'' will still persist ``in the near term,'' the ministry said in an e-mailed comment.
Increases
Private consumption jumped 18 percent, the biggest increase in 14 years, according to the ministry. Gross fixed capital formation, which includes investment and stock-building, also increased 18 percent, slowing from previous two quarters. Exports of goods and services grew 5 percent from a year earlier, while imports rose 11 percent.
Exports slowed most in fuel shipments and electronics, the Finance Ministry said. Analysts, including Lauri from Hansabank Markets, have said the decline in electronics trade is due to rising wages which are forcing companies such as Elcoteq SE, a Finnish contract manufacturer with a factory in Tallinn and Estonia's biggest exporter, to move its high-volume production to lower-cost countries.
Latvia's economy grew a revised 11.2 percent in the first quarter, the fastest pace in the European Union. Lithuania's economy grew 8.3 percent.
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Estonian Current-Account Gap Is Widest in 14 Years
From Bloomberg recently:
Estonian Current-Account Gap Is Widest in 14 Years
Estonia's current-account deficit swelled last quarter to the widest in at least 14 years as soaring wages and consumer borrowing spurred spending on imported cars and clothes.
The deficit, the broadest measure of trade in goods and services, widened to 17.9 percent of gross domestic product from 16.1 percent a year earlier and a revised 17.2 percent in the previous quarter, the Tallinn-based central bank said on its Web site today. The deficit is the highest since at least the first quarter of 1993, when the bank started giving quarterly figures.
Economic growth of 9.8 percent in the first quarter, the second-fastest pace in the European Union, helped trigger a 20 percent surge in wages in the period while credit growth of about 30 percent underpinned household spending. The widening deficit and faster inflation has raised concern the economy may overheat.
``The Estonian economy is living beyond its means,'' said Neil Shearing, an economist at Capital Economics in London, in an e-mailed comment. ``More needs to be done to slow domestic demand. The fiscal position could be further tightened and measures to curb rapid credit growth are needed.''
Estonia's biggest retailer, AS Tallinna Kaubamaja, more than doubled profit in the first quarter at its department stores and supermarkets. New car sales rose 49 percent, according to the association of car sales and service employers, AMTEL. Private consumption jumped 18 percent, the biggest increase in 14 years.
Deficit Outlook
Andres Saarniit, an adviser to the central bank, said the deficit is expected to ``decline in coming years, but still remain sizeable.'' The central bank revised up the 2006 current account deficit to 15.7 percent of GDP from an earlier estimate of 14.8 percent.
The Finance Ministry said it expects the current-account gap to widen further this year, citing fast growth in domestic demand and worsening competitiveness of industries where growing wages make up a bi part of overall costs. It also expects lower demand from abroad due to lower growth in Estonia's export destinations, the ministry added in an e-mailed statement.
Moody's rating service warned today the economy may slow more than expected if confidence slumps among borrowers and banks, which started tightening credit requirements in the first quarter.
Analysts said the risks to the economy were reduced by strong levels of foreign direct investment, which help cover the current account deficit.
``Some comfort is provided by the fact that the financing of the deficit seems to be okay, as 45 percent of the deficit was covered by FDI,'' said Mika Erkkila, a senior analyst with Nordea Bank in Helsinki, in an e-mailed comment.
Estonian Current-Account Gap Is Widest in 14 Years
Estonia's current-account deficit swelled last quarter to the widest in at least 14 years as soaring wages and consumer borrowing spurred spending on imported cars and clothes.
The deficit, the broadest measure of trade in goods and services, widened to 17.9 percent of gross domestic product from 16.1 percent a year earlier and a revised 17.2 percent in the previous quarter, the Tallinn-based central bank said on its Web site today. The deficit is the highest since at least the first quarter of 1993, when the bank started giving quarterly figures.
Economic growth of 9.8 percent in the first quarter, the second-fastest pace in the European Union, helped trigger a 20 percent surge in wages in the period while credit growth of about 30 percent underpinned household spending. The widening deficit and faster inflation has raised concern the economy may overheat.
``The Estonian economy is living beyond its means,'' said Neil Shearing, an economist at Capital Economics in London, in an e-mailed comment. ``More needs to be done to slow domestic demand. The fiscal position could be further tightened and measures to curb rapid credit growth are needed.''
Estonia's biggest retailer, AS Tallinna Kaubamaja, more than doubled profit in the first quarter at its department stores and supermarkets. New car sales rose 49 percent, according to the association of car sales and service employers, AMTEL. Private consumption jumped 18 percent, the biggest increase in 14 years.
Deficit Outlook
Andres Saarniit, an adviser to the central bank, said the deficit is expected to ``decline in coming years, but still remain sizeable.'' The central bank revised up the 2006 current account deficit to 15.7 percent of GDP from an earlier estimate of 14.8 percent.
The Finance Ministry said it expects the current-account gap to widen further this year, citing fast growth in domestic demand and worsening competitiveness of industries where growing wages make up a bi part of overall costs. It also expects lower demand from abroad due to lower growth in Estonia's export destinations, the ministry added in an e-mailed statement.
Moody's rating service warned today the economy may slow more than expected if confidence slumps among borrowers and banks, which started tightening credit requirements in the first quarter.
Analysts said the risks to the economy were reduced by strong levels of foreign direct investment, which help cover the current account deficit.
``Some comfort is provided by the fact that the financing of the deficit seems to be okay, as 45 percent of the deficit was covered by FDI,'' said Mika Erkkila, a senior analyst with Nordea Bank in Helsinki, in an e-mailed comment.
Estonia's Inflation Rate Rises to Six-Year High
From Bloomberg recently:
Estonia's Inflation Rate Rises to Six-Year High
Estonia's inflation rate increased to a six-year high in July on rising energy costs, adding to concern the Baltic economy is overheating.
Annual inflation accelerated to 6.4 percent, the fastest since June 2001, from 5.8 percent in June, the statistics office based in the capital Tallinn said on its Web site today. Prices rose a monthly 1.1 percent.
Standard & Poor's Ratings Services lowered Estonia's rating outlook to negative from stable last month, citing a higher risk of a ``hard landing'' due to a wide current-account deficit and accelerating inflation. Estonia was forced to delay euro adoption twice last year as economic growth pushed consumer prices beyond targets required for the currency switch.
``While growth rates are slowing, unfortunately inflation remains high,'' Anne Karik-Uustalu, an economist with Sampo Pank in Tallinn, said by phone. ``It's all due to inertia.''
Estonia's economic growth rate, second only to Latvia in the European Union, slowed to 9.8 percent in the first quarter. Inflation may peak next year as consumer confidence along with purchasing power starts to slow, the economist said.
Tax Increases
From July, the government increased the value-added tax on heating to 18 percent from 5 percent to meet the requirements of the European Commission. Inflation will remain at similar levels in coming months as energy-price increases filter into the economy, Karik-Uustalu said.
S&P said on July 2 that Estonia's ratings may be lowered if inflation accelerates to a level that is ``inconsistent with medium-term euro-zone accession.'' The rating agency also said plans to loosen budget policy would further fuel the $15.1 billion economy.
Unemployment at a 15-year low and wages rising an annual 20 percent in the first quarter boosted Estonians' spending on housing, food and cars, with private consumption rising in the same period at the fastest pace in 14 years.
Euro adoption is limited to countries that meet targets on inflation, budget deficits, debt, interest rates and currency stability. Inflation must be within 1.5 percentage points of the 12-month average rate of the three EU states with the slowest consumer-price growth. The target was 2.8 percent in June while Estonia's rate was 5 percent.
Estonia's Inflation Rate Rises to Six-Year High
Estonia's inflation rate increased to a six-year high in July on rising energy costs, adding to concern the Baltic economy is overheating.
Annual inflation accelerated to 6.4 percent, the fastest since June 2001, from 5.8 percent in June, the statistics office based in the capital Tallinn said on its Web site today. Prices rose a monthly 1.1 percent.
Standard & Poor's Ratings Services lowered Estonia's rating outlook to negative from stable last month, citing a higher risk of a ``hard landing'' due to a wide current-account deficit and accelerating inflation. Estonia was forced to delay euro adoption twice last year as economic growth pushed consumer prices beyond targets required for the currency switch.
``While growth rates are slowing, unfortunately inflation remains high,'' Anne Karik-Uustalu, an economist with Sampo Pank in Tallinn, said by phone. ``It's all due to inertia.''
Estonia's economic growth rate, second only to Latvia in the European Union, slowed to 9.8 percent in the first quarter. Inflation may peak next year as consumer confidence along with purchasing power starts to slow, the economist said.
Tax Increases
From July, the government increased the value-added tax on heating to 18 percent from 5 percent to meet the requirements of the European Commission. Inflation will remain at similar levels in coming months as energy-price increases filter into the economy, Karik-Uustalu said.
S&P said on July 2 that Estonia's ratings may be lowered if inflation accelerates to a level that is ``inconsistent with medium-term euro-zone accession.'' The rating agency also said plans to loosen budget policy would further fuel the $15.1 billion economy.
Unemployment at a 15-year low and wages rising an annual 20 percent in the first quarter boosted Estonians' spending on housing, food and cars, with private consumption rising in the same period at the fastest pace in 14 years.
Euro adoption is limited to countries that meet targets on inflation, budget deficits, debt, interest rates and currency stability. Inflation must be within 1.5 percentage points of the 12-month average rate of the three EU states with the slowest consumer-price growth. The target was 2.8 percent in June while Estonia's rate was 5 percent.
Estonian May Inflation Rate Rises to 5.7 Percent on Fuel Prices
From Bloomberg recently
Estonian May Inflation Rate Rises to 5.7 Percent on Fuel Prices
une 7 (Bloomberg) -- Estonia's inflation rate rose in May, driven by fuel and housing costs, moving the Baltic state further from its goal of adopting the euro.
The annual inflation rate increased to 5.7 percent from 5.5 percent in April, the statistics office based in the capital Tallinn said on its Web site today. Prices rose a monthly 0.7 percent, with transport costs rising 2.5 percent from April.
``The inflation pace was set by increases in fuel prices,'' said Anne Karik-Uustalu, an economist with Sampo Pank in Tallinn, before the report.
Estonia has already been forced to drop plans to adopt the euro because the inflation rate has remained above euro-entry rules. An unemployment rate at a 15-year low and a 20 percent jump in wages in the first quarter boosted spending on housing, food and cars.
To adopt the euro, the nation must keep inflation to within 1.5 percentage points of the average 12-month inflation rate of the three European Union nations with the slowest consumer price growth. That rate in April was 3 percent, while Estonia's rate was 4.7 percent in the same month.
Inflation will continue to accelerate this year amid a labor shortage and fast economic growth, the Finance Ministry and central bank have warned.
Moving Targets
The Cabinet of Prime Minister Andrus Ansip last week cut budget surplus targets in 2008-2011 from 1.5 percent of gross domestic product to 0.5 percent, prompting criticism from Central Bank Governor Andres Lipstok.
International institutions, including the International Monetary Fund, are also concerned that the $15.1 billion economy may overheat.
Reining in government spending is among the few tools available to Estonia to control price increases because the local currency, the kroon, is pegged to the euro in the exchange-rate mechanism.
Estonian May Inflation Rate Rises to 5.7 Percent on Fuel Prices
une 7 (Bloomberg) -- Estonia's inflation rate rose in May, driven by fuel and housing costs, moving the Baltic state further from its goal of adopting the euro.
The annual inflation rate increased to 5.7 percent from 5.5 percent in April, the statistics office based in the capital Tallinn said on its Web site today. Prices rose a monthly 0.7 percent, with transport costs rising 2.5 percent from April.
``The inflation pace was set by increases in fuel prices,'' said Anne Karik-Uustalu, an economist with Sampo Pank in Tallinn, before the report.
Estonia has already been forced to drop plans to adopt the euro because the inflation rate has remained above euro-entry rules. An unemployment rate at a 15-year low and a 20 percent jump in wages in the first quarter boosted spending on housing, food and cars.
To adopt the euro, the nation must keep inflation to within 1.5 percentage points of the average 12-month inflation rate of the three European Union nations with the slowest consumer price growth. That rate in April was 3 percent, while Estonia's rate was 4.7 percent in the same month.
Inflation will continue to accelerate this year amid a labor shortage and fast economic growth, the Finance Ministry and central bank have warned.
Moving Targets
The Cabinet of Prime Minister Andrus Ansip last week cut budget surplus targets in 2008-2011 from 1.5 percent of gross domestic product to 0.5 percent, prompting criticism from Central Bank Governor Andres Lipstok.
International institutions, including the International Monetary Fund, are also concerned that the $15.1 billion economy may overheat.
Reining in government spending is among the few tools available to Estonia to control price increases because the local currency, the kroon, is pegged to the euro in the exchange-rate mechanism.
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