Estonia Will Avoid a Recession, Central Bank Governor Says
Jan. 16 (Bloomberg) -- Estonia will avoid a recession in 2008, easing concerns that the Baltic state's economy will experience a ``hard landing,'' central bank Governor Andres Lipstok said.
``We should remain above zero on the quarterly basis,'' newspaper Eesti Paeevaleht quoted Lipstok as saying today. The forecast is for annual growth of 4.3 percent in 2008. Such quarterly growth is ``neither a recession nor a catastrophe.''
Lipstok said the $16.4 billion economy is helped by ``strong'' exporters, while domestic demand is ``keeping companies busy'' and European Union aid flows into the nation. ``Setbacks are possible, but these three factors should steadily keep our heads above water,'' he said.
Estonian growth slowed last year from 10.1 percent in the first quarter to a four-year low of 6.4 percent in the third as consumer spending and property investment waned. Banks including Citigroup and Goldman Sachs warned the Baltic countries risk an abrupt slowdown as the boom after joining the European Union in 2004 has stoked inflation.
A hard landing occurs when an economy shifts from fast growth to a contraction.
Lipstok's comment echo a survey by Estonian economists last month, which showed 81 percent of analysts believe the Baltic economy will avoid a contraction in 2008, when most respondents expect growth to reach its slowest point in the current economic cycle.
2008 Estimate
Most private and public forecasting institutions, including Nordea AB, the biggest Nordic lender, and the Finance Ministry, expect 2008 gross domestic product growth of 4 percent to 6 percent. Lipstok said the bank expects growth will start accelerating in the second half of this year.
``The recovery will come with a delay, which means that things may not start going uphill precisely in the middle of the summer,'' Lipstok said. ``Some companies, which are using cheap labor for cheap subcontracting for example, could face difficulties and go bankrupt.''
Lipstok said the bank had not anticipated the acceleration of global fuel and food prices in the middle of last year. He reiterated Estonia will not meet euro-entry criteria within 2007 and 2009.
``Giving certain targets is risky,'' he said.
Prime Minister Andrus Ansip said this month the country, which delayed the move twice in 2006 due to soaring inflation, will strive to adopt the euro in 2011.
To contact the reporter on this story: Ott Ummelas in Tallinn oummelas@bloomberg.net
