OREANDA-NEWS. September 07, 2012. Due to stronger than expected domestic demand, Nordea raised this year's growth prognosis for Estonia to 2.3%. According to the freshly published Economic Outlook, external demand is to increase in the second half of 2013, pushing Estonia’s 2013 economic growth to 3.5%. According to the prognosis, the main risks are related to the possible resurgence of the debt crisis, reported the press-centre of Nordea.

Nordea believes that cooling of Eurozone economy will continue throughout 2012 and only a mild recovery is expected in 2013. The expected growth in the Eurozone will remain at 0.6%. Although the Baltics are not among the most vulnerable markets, decreasing export demand will limit their growth in the second half-year. Nordea expects Estonia's growth to reach 3.5% next year and 3.8% in 2014.

According to Nordea's Chief Economist Tonu Palm, Estonia is doing reasonably well considering the crisis. “There will be no export demand recovery in the II half-year but the fast investment and consumption growth will slow down only moderately. The next year seems to become a transitional year when the growth will, to a large extent, depend on domestic demand and surpass 3% on a yearly basis“ Nordea's Chief Economist Tonu Palm assesses.

Nordea believes that growth will be driven by domestic demand, which is reflected by retail sales growth beyond the wage growth, as well as higher contributions from the construction, trade, and information and communication sectors. “Private investment is largely driven by a need to expand business volume and upgrade technologies and production. Estonia continues to attract investments, while the Eurozone and several Nordic markets are already experiencing a drop in investment levels,” Palm added.

The Chief Economist says that similarly to the Nordics, the impact of the debt crisis is softened in Estonia by private consumption and a strong labour market. “Unlike in the Eurozone, Estonian consumer confidence still remains around the average historical level. Stable labour markets and moderate wage growth are likely to support retail sales, with only a slight moderation in year-on-year growth expected in the second half-year. A lot hinges on the domestic confidence levels right now," Tonu Palm said. Nordea forecasts an annual inflation rate of 3.7% and unemployment rate of 10.8% for Estonia.

Nordea expects Finnish economy to undergo an extensive cooling process, initiated by decreasing exports and investments. We believe that export volumes will go down in the second half of the year. The weak demand will have its impact on private consumption, leaving it weak throughout 2013. Growth will increase from 0.8% this year to 1.2% in 2013.

The Swedish economy has survived the debt crisis better than expected in the first half-year, supported by private consumption. The continuing export growth in Q2 attests that the export sector has remained competitive regardless of the strengthening SEK. Although Nordea expects only moderate growth in the second half of the year, increasing economic activity may be expected thereafter.

The largest possible risk for both Estonia and the Nordics lies with the possible resurgence of the debt crisis. “If no solution to the Eurozone crisis is found soon, a deeper and longer recession may be in store for the Eurozone. We have seen that in the context of a global slowdown, resurgence of the debt crisis may hurt confidence even in stronger Eurozone economies, including Germany. This would bring the crisis already to our doorstep," the Chief Economist admitted. Our outlook is based on the assumption that extreme developments will be excluded by the planned political steps and a growing consensus in support of growth. Nordea believes that integration with the Nordics and a balanced development path will serve Estonia in handling the crisis better.