OREANDA-NEWS. October 15, 2009. When introducing the new economic forecast of SEB, the bank’s economic analyst Ruta Arumae said that signs of stabilisation can be seen in Estonian economy. “We can talk about the end of the decline, but we cannot talk about a rise just yet. We are more likely to see a standstill next year. The GDP forecast is -13.6 percent for 2009 and -0.3 percent for 2010”, reported the press-centre of SEB.

Arumae says that the economy is being pushed into the minuses by weak domestic demand, which may hopefully be balanced by export as the outlook of the global economy has improved. “The weakness in domestic demand results from continuing cost cutting, reduction of salaries and jobs and the end of the period when unemployment benefits were paid. There are also some noticeable risks in the recovery of the global economy and it is still on a rather uncertain foundation. Two important export markets of Estonia – Latvia and Lithuania – are still facing a 3 to 4 percent economic decline in the next year.”

“Deflation will slow down at the end of this year and increasing energy prices will slowly start pushing up other prices; inflation in 2010 will be 1 percent on average. The current account surplus will increase even more as the outlook of export is better than that of import," said Arumae.

Arumae believes that the arrival of the euro in 2011 is possible, but the situation is touch and go and it is impossible to say at the moment whether the budget deficit criterion will be met this year. The arrival of the euro in 2011 would reduce the risks that are still present in the economy today, lower loan interest rates and bring in more foreign investments.

Allan Parik: Companies have managed to adapt rather well
Member of the SEB Management Board and Head of Corporates and Institutions Area Allan Parik said that companies have managed to adapt to the new circumstances rather well. Getting rid of excessive stock has been successful. It is important that companies have become more open and managed to improve their efficiency. Work on cutting costs is also likely to continue in the next year, even though opportunities will be more limited.

“The economy has fallen back to the level of 2005 and the recovery of domestic demand may take 3 to 5 years. Things will be easier in the export sector, which can hope to see some growth in 2010. We probably see market consolidation in 2010 – there will be more acquisitions and mergers. Only the best will survive on the market,” noted Allan Parik.

Parik believes that adopting the euro is extremely important as it would make the situation of companies considerably easier: interest expenses would decrease and there would be more opportunities for foreign investments.