Macroeconomic Forecast Estonia

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Estonian industrial output contracted on average by 26.0% in 2009, exactly in line with BMI's estimate. Going forward, we continue to expect a marked improvement in industrial production growth through 2010, with the average expected to flip into positive territory at 3.0% for the year. Already, the pace of contraction has shown steady deceleration through Q409, with December showing a decline of only 8.2% y-o-y, down from -11.2% and -22.6% in November and October respectively. We caution though, that much of the improvement in the growth rate will be due to base effects as opposed to a fundamental increase in output. Indeed, in nominal terms, Estonian industrial production is expected to remain at 2004 levels through the medium term.