Estonian recession "reaches bottom;" 16.6 per cent drop in 2Q

Aug 12, 2009, 10:15 GMT

Tallinn - Estonians took cold comfort Wednesday from the fact that a reported 16.6-per-cent year-on-year drop in gross domestic product (GDP) means that the country's economy probably cannot contract any further.

The data, which compared economic performance in the second quarter of 2009 with the same period in 2008 comes after the country's economy registered a 15.1-per-cent contraction in the first quarter.

However, analysts were quick to point out that the figures suggested the Estonian recession would probably not get much worse.

'The number was significantly better than we and consensus had expected. It looks as if the economic decline has reached the bottom,' said Danske Bank analyst Lars Christensen.

'We expect to see a slightly positive development in the second half of the year. Overall, we expect GDP this year to shrink in a range of 13-15 per cent,' he said.

SEB analyst Ruta Eier told the German Press Agency dpa: 'The pace of economic contraction is slowing down. There are quite a few indicators that the bottom is being reached in the private sector, though the government sector faces quite severe cuts in the second half of the year.'

The Estonian figure was better than the most recent comparative data for the other two Baltic states, Latvia and Lithuania, which recorded second quarter contractions of 19.6 per cent and 22.4 per cent respectively.

Estonia's economy began to contract a year ago as the effects of the global credit crunch began to be felt. A decade-long boom fuelled by cheap credit, mainly from Scandinavian banks, came to an abrupt end and plunged the Baltic economies into the EU's deepest recessions.

The minority government of Andrus Ansip has introduced a range of tough measures, including wage cuts and tax increases, as Estonia tries to stay on course for adoption of the euro in 2011 or 2012.