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28 Jan - 03 Feb 2011

Estonian Economy Grew 2.5 Percent in 2010

28 January (BNS)

The Ministry of Finance said on Friday it estimates the Estonian economy to have grown 2.5% last year and sticks to the 3.6% growth estimate for 2011 that it predicted in its economic forecast in summer.

In the first nine months of 2010, the gross domestic product (GDP) of Estonia grew 1.9%, including 5% in the third quarter. The factors that primarily supported growth were increased external demand and export growth arising from it, the ministry said. Year-on-year growth in the final quarter of the year was probably weaker than in the third quarter because of the growth trend that got its start at the end of 2009, setting up a higher reference base. Statistics Estonia is scheduled to publish its preliminary estimate of fourth-quarter GDP growth on 11 February.

In recent months the increase in exports and imports has been faster than forecast in summer. Economic growth in the Nordic countries has accelerated, creating stronger than expected demand for Estonian exports. In the end the contribution of net export to GDP in the final quarter of the year may turn out slightly bigger than estimated in summer, said the ministry.

The ministry made an upward revision of its inflation estimate for 2011, however, saying that average annual inflation may hit 4% this year compared with the estimate of 2.5% offered in summer. The main cause for that is food, which has become significantly more expensive in recent months as a result of leaps in world market prices. The prices of fuels, too, embarked on a rise at the end of last year for the same reason. Base inflation, on the other hand, remains low—about one percent. In 2010, Estonia's CPI grew 3%.

In unemployment, the ministry expects a stable downtrend to continue in the coming quarters and the unemployment rate for the whole year may turn out somewhat lower than forecast. According to the estimate, wage growth will be modest this year but may because of the faster recovery of the economy turn out bigger than the annual rate of 2.6% suggested in the summer forecast.

The recovery of the economy from the crisis hasn't ended yet and as long as internal demand remains weak no all-out wage growth can be expected in the economy, said the Ministry of Finance.

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