Macroeconomic Forecast Estonia

We hold to our forecast for Estonian inflation to average 2.0% in 2010, with latest data for July recording a 2.8% y-o-y rise for the Harmonised Index for Consumer Prices (HICP). Over the first seven months of the year, Estonian inflation has averaged 1.6% y-o-y, marking a substantial increase over the same period in 2009 and a clear push out of deflation. That said, we maintain that a lacklustre and protracted recovery for the Estonian economy, weighed down by persistently weak demand from the eurozone will weigh on demand pressures going forward. Headline inflation is forecast to fall back down to 1.9% by end-2010.

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