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Estonia falls into recession

Catherine Deshayes

Estonia is the first of the Baltic States to technically fall into recession, according to official data compiled by Statistics Estonia.

The economic research group blames the bursting of the Baltic property market bubble and a sharp decrease in consumer spending for the financial meltdown.

The research shows that Estonia's economy contracted by a seasonally adjusted 0.9 per cent in the last few months, following a 0.5 per cent fall in the first part of this year.

Capital Economics have also shown that Estonia's GDP is now falling at an annual rate of 1.4 per cent.

Danske Bank's Baltic specialist Violeta Klyviene described the Estonian GDP data as "even lower than our already bearish expectation."

"Obviously, the numbers are bad, as they confirm that the slowdown in the Estonian economy is continuing.

"Furthermore, the speed of adjustment is significantly higher than was expected just half a year ago. The Estonian economy is clearly sliding into recession, and the economy will slow further rather than rebound.

"In sum, we expect negative growth for 2008 as a whole of around -1 per cent. Meanwhile, all indicators suggest that a pronounced slowdown is also under way in the other two Baltic economies," added Ms Klyviene.

Capital Economics predicts that Latvia will soon join Estonia in recession. The Latvian economy grew by just 0.2 per cent year-on-year in quarter two of this year.

Knight Frank shows that average property prices in Estonia and Latvia depreciated by nearly 11 per cent and 6 per cent respectively in Quarter one in 2008. Despite this, Lithuania remains the most stable Baltic property market.

It will come as small consolation to Estonia that being the first Baltic country to go into recession makes it more likely that it will also be the first to emerge into sustainable growth.

But with Latvia teetering on the edge of the precipice and Lithuania only starting to experience the first signs of a slowdown, if Estonia can weather the storm it could emerge with a significant economic headstart over its neighbours and competitors.

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