Estonian economy still in reverse as MPs mull budget

Dec 9, 2009, 12:16 GMT

Tallinn - Estonia received mixed news on its economic prospects Wednesday as MPs debated the proposed 2010 budget during its final reading in the parliament, or Riigikogu.

Finance Minister Jurgen Liigi has presented lawmakers with a hard- hitting austerity budget that aims to slash nearly 3 billion kroons (280 million dollars) from government expenditures and trim Estonia's budget deficit to around 3 per cent of GDP, which would keep the country on track to adopt the euro, possibly as early as 2011.

Meanwhile, according to data released by the national statistics office, Estonia's gross domestic product (GDP) decreased by 15.6 per cent in the third quarter of 2009, compared to the same quarter in the previous year.

The figure was revised from an earlier estimate of a 15.3-per-cent drop. GDP has now been in reverse for seven successive quarters, though the rate of decline is starting to ease.

In the first quarter of 2009, GDP decreased by 15 per cent, while in the second quarter it fell by 16.1 per cent as the northernmost of the Baltic states experiences one of the deepest recessions in the European Union.

Only two areas of the economy recorded growth during the third quarter: public administration and fishing. In contrast, the financial sector contracted by 30 per cent year on year.

'The general condition of the economy was still negative in October and November, but the confidence of consumers and the producers improved mainly due to improvements in future expectations,' said a statement from the Finance Ministry.

Despite the sharp decline in GDP, the Estonian central bank reported that the country had recorded a current account surplus during the third quarter equivalent to 6.6 per cent of GDP.

'Although an increase in imports reduced the surplus of the goods and services account, it was offset by a declining outflow of investment income,' said central bank economist Andres Saarniit.

An increased flow of EU funds had also helped the current account, Saarniit said.