Now Available: Estonia Business Forecast Report Q1 2014

We believe Estonia is on a sustainable growth trajectory following the deep recession brought on by the eurozone debt crisis, with economic growth to average 3.1% in the next three years before gradually settling towards long-term trend growth of 2.6%. Domestic demand will be the main driver of growth over the medium term, as slow to recover external demand hinders stronger export growth.

We maintain a positive view towards Estonia's fiscal trajectory. Following two straight years of low-level budget deficits, conservative expenditure targets and continued economic growth will allow for a return to fiscal surplus by 2014. Meanwhile, public debt will remain the lowest in the European Union as a percent of GDP.

Full Report Details at
- http://www.fastmr.com/prod/713420_estonia_business_forecast_report_q1_2014.aspx?afid=303

Popular support for Estonia's ruling Reform Party, in power since 2007, has fallen significantly and is unlikely to regain previous highs. While the pro-Russian Centre Party will remain popular amongst the ethnically Russian electorate, its support base has grown and now poses a threat to the Reform Party's majority in upcoming Parliamentary elections in 2015.

Major Forecast Changes

We have revised down our full-year growth estimate for 2013 for a second quarter in a row, as the ongoing slump in gross fixed capital formation continues to weigh on economic activity. We now expect real GDP to grow by 1.9% in 2013, down from our previous forecast of 2.1%. However, this has not fundamentally altered our view on the medium to long term growth prospects of the economy.

Key Risks To Outlook

As a member of the eurozone, Estonia remains exposed to any renewed flare-up of the sovereign debt crisis. The extreme openness of the Estonian economy, where exports plus imports represented 184.4% of GDP in 2012, means economic growth will remain extremely sensitive to external shocks.

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