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Estonia Country Risk Report Q2 2016

  • January 2016
  • -
  • Business Monitor International
  • -
  • 41 pages

Core Views

Rising external demand will help accelerate GDP growth in 2016,boosted by an improving outlook for inward investment. While privateconsumption will remain an important driver of production, increasinginflation following the euro's depreciation in 2015 will weigh on thiscomponent as a share of overall GDP.Estonia's fiscal deficit will narrow slightly across 2016 thanks toprudent expenditure and increased revenue collection. The budgetgap that remains will not be a cause of concern for either investorsor the government, thanks to a low public debt burden, sufficientforeign reserves, and a likely return to a budget surplus in 2018.Increasing loans to non-financial corporations and improving GDPgrowth with trade partners will increase both imports and exportsin Estonia in 2016. Although this will lead to a marginal increasein the country's current account deficit, it will remain manageable,financed by robust inbound FDI.

Table Of Contents

Estonia Country Risk Report Q2 2016
Executive Summary 5
Core Views5
Key Risks5
Chapter 1: Economic Outlook 7
SWOT Analysis 7
BMI Economic Risk Index 7
Economic Growth Outlook 8
Brighter Outlook Ahead After Difficult 20158
Rising external demand will help accelerate GDP growth in 2016, boosted by an improving outlook for inward investment While private
consumption will remain an important driver of production, increasing inflation following the euro's depreciation in 2015 will weigh on this
component as a share of overall GDP
GDP By Expenditure Outlook 9
TABLE: GDP GROWTH FORECASTS9
TABLE: PRIVATE CONSUMPTION FORECASTS9
TABLE: GOVERNMENT CONSUMPTION FORECASTS9
TABLE: FIXED INVESTMENT FORECASTS10
TABLE: NET EXPORTS FORECASTS10
Fiscal And Debt Outlook 10
Prudent Policy Keeps Budget Deficit In Check10
Estonia's fiscal deficit will narrow slightly across 2016 thanks to prudent expenditure and increased revenue collection The budget gap
that remains will not be a cause of concern for either investors or the government, thanks to a low public debt burden, sufficient foreign
reserves, and a likely return to a budget surplus in 2018
Structural Fiscal Position 11
TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES12
External Trade And Investment Outlook 13
Nothing To Fear From Deeper Deficit In 201613
Increasing loans to non-financial corporations and improving GDP growth among trade partners will increase both imports and exports
in Estonia in 2016 Although this will lead to a marginal increase in the country's current account deficit, it will remain manageable,
financed by robust inbound FDI
Outlook On External Position 13
TABLE: CAPITAL and FINANCIAL ACCOUNT BALANCE14
TABLE: TOP FIVE GOODS EXPORTS IN 201414
TABLE: TOP FIVE GOODS IMPORTS IN 2014 15
Monetary Policy 15
ECB: Underwhelming But Still Substantial Easing15
The European Central Bank (ECB)'s monetary policy easing on December 3 disappointed markets in terms of its depth and breadth
However, strengthening economic and inflation conditions in the eurozone suggest that the ECB may be better off holding fire, and in
our view, the easing is still fairly significant despite disappointment on the headline figures
Chapter 2: 10-Year Forecast 19
The Estonian Economy To 2025 19
Trend Growth To Average Lower In 2016-202519
Trend average growth in Estonia is forecast to average 29% between 2016-2025, well below the 76% from 2001-2007 That said, we
stress that the worst effects of the 2008-2010 recession are now past and the economy is well positioned for sustainable long-term growth
TABLE: LONG-TERM MACROECONOMIC FORECASTS19
Chapter 3: Political Outlook 21
SWOT Analysis 21
BMI Political Risk Index 21
Domestic Politics 22
Relations With Russia Remain Prominent22
Despite some signs that relations are improving, tensions with neighbouring Russia will continue to dominate Estonia's political
landscape in 2016 The issue of Russian aggression will remain at the heart of the debate surrounding Estonia's foreign policy and
domestic political landscape
TABLE: POLITICAL OVERVIEW22
Long-Term Political Outlook 23
Few Risks To Structural Stability Over Long Term23
Estonia is among the most structurally stable countries in emerging markets, as reflected in its very high 848 (out of 100) Long-Term
Political Risk score Having fully converged to all major multilateral European institutions (European Union, European Monetary Union
and Schengen Agreement), Estonia will continue to benefit from a strong policy anchor and high degree of institutional capacity over the
long run
Chapter 4: Operational Risk 25
SWOT Analysis 25
Operational Risk Index 25
Operational Risk 26
TABLE: DEVELOPED STATES - LABOUR MARKET RISK26
TABLE: DEVELOPED STATES - LOGISTICS RISK30
TABLE: DEVELOPED STATES - CRIME AND SECURITY RISK32
TABLE: DEVELOPED STATES - TRADE AND INVESTMENT RISK 35
Chapter 5: BMI Global Macro Outlook 37
Global Macro Outlook 37
Unfinished Business In 201637
TABLE: GLOBAL ASSUMPTIONS 37
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %38
TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, % 38
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %39
TABLE: ESTONIA - MACROECONOMIC DATA and FORECASTS41

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