Recovery On, But Growth To Remain Weak

A major upside surprise in second quarter Estonian real GDP growth has raised risks to our 0.2% and 2.2% growth forecasts for 2010 and 2011 respectively. We maintain though, that while the Estonian recovery has at least initially come in stronger than expected, that a protracted and lacklustre period of growth is still the core scenario. A downturn in global growth and persistent weakness from eurozone demand in 2011 will reinforce continued deleveraging and deflationary risks domestically. This will ensure that return to pre-crisis growth levels remains off the cards.

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