3 May (BNS)

In its spring economic forecast published on Friday, the European Commission upheld the 2013 economic growth estimate of 3% offered on Estonia in its winter forecast.

Estonia's 3.2% economic growth in 2012 was supported by robust domestic demand and moderate export growth. In 2013, the forecast real GDP growth of 3% is expected to be more balanced and continues converging to its long-term average trend, reaching 4% in 2014, the Commission said in its spring forecast of 2013, titled "The EU economy: adjustment continues." It said risks to the forecast on Estonia appear broadly balanced and mainly related to the external sector.

According to the Commission, sound fiscal policy combined with the remarkable adjustment capacity of the economy has supported Estonia's resilience to the sovereign-debt crisis. The Commission's forecast is consistent with the forecast of the Estonian Finance Ministry, which holds out GDP growth of 3.0% for Estonia for this year and 3.6% for 2014.

The Commission said expectations are that the relatively good economic performance of Russia and the resilience of the Nordic countries to the sovereign-debt crisis will have a positive effect on Estonia's foreign trade. Based on a progressive recovery of Estonia's main trading partners from mid-2013, export growth is expected to continue supporting GDP, with a strong trade surplus in services still largely offsetting a persistent trade deficit in goods. Export growth is seen to boost investments by private enterprises, which will offset the effect from the contraction in public investment as the majority of projects financed through the revenue from the sale of excess greenhouse gas emission certificates will be completed.

Overall, declining global commodity prices in 2013 and 2014 are assumed to ensure that inflation in Estonia will continue its slow decline. Although core inflation is relatively low, it might soon start increasing as the unemployment rate has already passed below the natural rate of unemployment.