Estonian public media ERR reports that SEB Bank’s latest outlook states that the country’s economy is expected to experience a decline for a second consecutive year. The bank’s experts predict that the country’s GDP will fall by 1.8% this year and 1.5% next year.
SEB Bank’s economic analyst Mihkels Nestors says the perspectives of Estonia’s economy have gotten worse in recent months, whereas the state of the global economy has improved.
“There are good news from the US, which is considered a beacon of the global economy. The recession that was expected to happen there has not yet come,” said Nestors.
Inflation in the US is up because of the rise of interest rates,
and the economy has started slowly growing. According to SEB Bank’s latest outlook, this year the GDP in the US will increase by 2%. Nevertheless, next year’s growth will be limited to 0.9%.
SEB Bank predicts stagnation in Eurozone in the coming quarters. Germany faces the biggest difficulties, considering this country’s economy is the biggest in Eurozone. SEB Bank expects Eurozone’s GDP to grow by 0.6% this year and 0.8% next year.
One of the biggest challenges for Estonia is the economic decline of its main trade partners. According to SEB Bank’s latest economic outlook, Finland’s GDP will go down by 0.3%, and the outlook for 2024 does not suggest a recovery will start then. Sweden is expected to become even weaker this year – with as 1.2% GDP drop. SEB Bank predicts it will remain unchanged in 2024.
Nestors said Estonia has done rather well so far despite all the negative factors. “Although the actual GDP has been going down for four consecutive quarters, it has been almost unnoticeable,
because it was largely masked by the rapid rise of nominal income.
Now that inflation is slowing down, the real state of the economy is becoming more apparent for residents.”
The biggest problem of Estonia’s economy, according to Nestors, is the sharp drop in demand for products of the processing industry. “This is largely related to the situation with Nordic economies, which is not expected to improve next year. This is why the lumber, construction and furniture industries are facing the need for a major restructuring. For Estonia’s exports it means the increase will not reach the previous level until 2025.”
The decline in exports and production volumes will cause a higher unemployment level. However, it is expected to be short, because Estonia has a constant shortage of work force. SEB Bank predicts the average unemployment level will be 6.5% this year and will increase to 6.9% next year.
The bank expects Estonia’s economy to return to its normal pace in 2025.
Estonia’s Ministry of Finance predicted in its last week’s published economic outlook that the country will have a 2% recession this year. The ministry predicts next year the country will have a 2.7% economic growth next year.
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