SEB cuts Estonia’s 2013 GDP growth forecast to 1.3%.

By bne IntelliNews October 15, 2013

SEB Bank revised the GDP growth forecast for Estonia from previous 1.5% to 1.3% for 2013. In 2014, GDP growth is expected at 2.6% vs. previous forecast of 3.3%. The bank sees slower GDP growth in 2013 due to weak exports growth and decreasing investment. In 2014, improving external demand will lead to a recovery to 2.6%. However, in short-term the growth is seen below the potential of 3%-4%.

The IMF, in its latest World Economic Outlook, believes that Estonia’s GDP will grow by 1.5% y/y in 2013 and 2.5% y/y in 2014. The previous forecast of 3% GDP growth for 2013 and 3.2% for 2014 was thus lowered.

At the same time, Estonia’s growth is expected to be faster than the average forecast of the advanced economies in Europe category. GDP growth in this category is expected to remain flat in 2013 and to increase by 1.2% in 2014. Eurozone GDP growth is expected at 0.4% in 2013 and 1% in 2014.

Previously, the Bank of Estonia revised its GDP forecast for 2013 to 2% from previous 3%. Main reasons behind the worse outlook are contraction of domestic demand and specifically fixed capital investment (seen slowing down to 2% growth). However, the decline in investment is driven by temporary factors and is expected to return to equilibrium in 2014 and 2015.

Estonia's FinMin expects GDP growth of 1.5% in 2013 vs. previous forecast of 3%. The revision of the forecast was attributed to slower-than-expected growth in the first two quarters of 2013. The increase in domestic demand slowed down, while main external trading partners such as Finland, Sweden, and Russia are seeing a modest growth, FinMin commented. The 3.6% GDP growth forecast for 2014 remains unchanged.

According to the second estimate by Statistics Estonia, in Q2/13 the GDP increased by 1% y/y and declined by 0.2% q/q in seasonally and working-day adjusted terms. This is worse than the previous estimate of 1.3% y/y and 0.1% q/q economic growth for Q2. The growth slowed down after the GDP increased by 1.1% y/y and declined by 1% q/q. To compare, in Q4/12 GDP growth was at 3.7% y/y and in 2012 overall at 3.2% y/y.

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