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Cablegate: Estonia's Q2 Gdp Falls 16.6 Percent, but Fall Is Slowing

Published: Fri 14 Aug 2009 12:20 PM
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TAGS: ECON EFIN ETRD PGOV EN
SUBJECT: Estonia's Q2 GDP Falls 16.6 Percent, but Fall is Slowing
1. According to Statistics Estonia, Estonia's GDP fell 16.6 percent
year-on-year in the second quarter in 2009. Most of the decrease
can be explained by reduced manufacturing, construction, wholesale
trade, and financial intermediation. The good news is, the drop in
GDP seems to be slowing. GDP fell by 3.7 percent
quarter-on-quarter, compared to 6.1 percent in the first quarter of
the year. Analysts at two of Estonia's largest banks, SEB and
Swedbank, expect the GDP decline to level off in the third quarter.
SEB predicts that while cuts in government spending will put
downward pressure on GDP this quarter, this pressure could be
alleviated by a slight increase in consumption.
2. Statistics Estonia also released Q2 job figures, which show that
unemployment worsened, but at a decreasing rate. Unemployment for
the quarter was 13.5 percent, compared to 11.4 percent in Q1.
However, Q1 saw 26,000 people lose their jobs, compared to 13,000
newly unemployed in Q2. Officially, Estonia now has 593,000
employed persons, and 92,000 unemployed. Employment levels fell
the most in the construction field, where one in three workers lost
their jobs, while employment grew slightly in the manufacturing
sector. Underemployment also increased, from 3,000 people at the
beginning of the year to 15,000 at the end of Q2.
3. Comment: The Prime Minister continues to stress that the GOE's
main goal for the near future is to meet the Maastricht Criteria to
join the Euro zone. Estonia hopes to be allowed to adopt the Euro
on January 1, 2011. Estonia is doing well on most of the criteria,
but the declining GDP is making it hard for the government to keep
its annual deficit below 3 percent. Having run budget surpluses
for most of the decade, Estonia has already had to cut government
spending twice this year and raise VAT to try and limit the annual
deficit. Swedbank believes that a third round of budget cutting,
reducing at least another EEK two billion [USD 182.5 million], will
be needed. So far, polling indicates the majority of Estonians
support the PM's plans to join the Euro, though this support will
be tested in the run-up to local elections on October 18.
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