Estonian GDP growth is set to be ahead of other emerging European economies in 2011, according to statistics published by the EBRD (European Bank for Reconstruction and Development). Despite having one of the largest declines in GDP in Europe in 2009, it is set to outperform Latvia and Lithuania in terms of GDP growth as a percentage in 2011. In Central Europe and the Baltic states it is only outperformed by the Slovak Republic and Poland.
Estonia’s performance in 2011 will be dependant firstly on a projected slight decreased in growth in Germany – it is expected that good trade links with Germany will impact on new Eurozone members, according to the EBRD. Secondly, the removal of foreign exchange risks now that Estonia has adopted the Euro will also have a progressive impact, alongside the increased tourist receipts that adopting the European single currency will bring. Statoil Fuel & Retail ASA, a subsidiary of Statoil, the largest offshore oil and gas company in the world, has established one of its major financial centres in Estonia – a choice motivated by the economic conditions provided by Eurozone entry. There can be no doubt that Eurozone entry will be good for the Estonian economy, despite the fact that prices in shops do seem to have risen due to the switchover.
Estonia has also recently joined the Organisation for Economic Co-operation and Development – another wise choice that will only attract potential investors, by liberalising market access in financial services and in cross border insurance transactions, and became the first ex-Soviet state to do so. This will also benefit it’s IT and high-tech industries – it is one of the most advanced, e-friendly nations to be in the elite OECD club.
However, this GDP growth is not without risks – it could easily be scuppered by harsh taxes on banking and financial services. Estonia must be careful not to follow the path of Western nations and end up lowering growth by punishing the banking sector for the 2009 downturn. IRL Chairman Mart Laar outlined the risks of higher taxation – indeed, he not only warns against raising general taxation, but is pushing for the overall tax burden to be lowered. “By lowering taxes, Estonia would lose money, at least temporarily. However, this is the only way that we can move forward”, he said. Similarly the sovereign debt crisis could have an impact, although so far Estonia seems to have limited exposure to this risk.
All things Estonian 