OECD: Estonian economy volatile despite recovery
by Daniel Mason
The Estonian economy has recovered strongly from a deep recession at the height of the financial crisis and – although growth has since weakened – it should implement reforms now to protect against future shocks, the Organisation for Economic Cooperation and Development said today.
Estonia, which joined the euro in January 2011, saw its gross domestic product grow by an impressive 8.3 per cent that year, after having suffered a dramatic decline of 14.1 per cent in 2009. The OECD predicted that growth would be a more moderate 2.2 per cent this year and 3.6 per cent in 2013.
Data from Eurostat showed that unemployment fell from 13.2 per cent to 10.1 per cent between the second quarter of 2011 and the same time this year, the biggest improvement in the European Union over that period.
According to the OECD, a group of 34 developed economies, the recovery was made possible by Estonia's "flexible labour force, business friendly regulation, well capitalised financial institutions, a successful transition from the currency board to euro area membership, and sustained credibility of fiscal policy".
But despite those positives, the report warned: "The Estonian economy is exposed to considerable volatility, which could threaten growth and well-being and contribute to high long-term unemployment."
It added: "While the economy has regained competitiveness in the aftermath of the crisis, there are important downside risks linked to the external environment. Further intensification of the euro area sovereign debt crisis combined with a slowdown in Nordic countries could push the economy into recession."
In Tallinn today, OECD secretary general Angel Gurrķa said: "Over the past decade, Estonia has achieved one of the highest medium-term growth rates in the OECD, accompanied by rapid improvement in living standards.
"It is in good times that we prepare for future storms, which is why Estonia should begin implementing reforms today to make it even more resilient to future shocks. Reducing the considerable volatility that Estonia has experienced is key to ensuring sustainable growth and well-being over the long term."
The think-tank said Estonia could improve its position further by implementing more effective supervision of financial markets, imposing a spending ceiling as a defence against boom and bust cycles, and improving the effectiveness of social protection, labour market and education policies.