Sunday, February 20, 2011

Estonia Optimistic about Continued Recovery


Reuters: Estonia's Economy Expected to Grow 3.6 Pct in 2011

Baltic Times: As Estonia Recovers From the Crisis, It Remains Optimistic
BBN: Estonian Unemployment Rate Falls to 13.6%
RTT: Estonian Unemployment Drops Amid Economic Recovery
Bloomberg: Estonia's Economy Expands Most Since 2007 on Record Exports, Industry
Reuters: Estonia Q4 GDP Leaps 6.6 Pct on Manufacturing Boost

Estonia, the newest member of the euro zone, experienced record growth in the fourth quarter and has much to be optimistic about in the coming year. The International Monetary Fund (IMF) reports that Estonia's GDP is expected to rise by 3.6% in 2011, after rising an impressive 6.6% in 2010. In 2010, the unemployment rate fell from the annual average of 16.9% to 13.6% in the fourth quarter. The drop in unemployment and economic growth was caused by a rise in manufacturing and exports. Demand for Estonian goods came largely from Swedish and Finnish companies that import Estonian electronics and machinery, including televisions and radios. Specifically, 10% of Estonia's export is in wireless network gear produced at the Estonian Ericsson unit.

The country's economy has not reached pre-crisis levels, however, making some wary of declaring the recovery complete. The small Baltic nation faces the continuing challenge of maintaining economic growth and creating jobs. The IMF worries that Estonia does not have enough skilled workers in key growth sectors, which would make the recent drop in unemployment unsustainable. Due to a small population and workforce, Estonia is still vulnerable to waves of unemployment, especially of young highly-skilled workers. Without a steadily growing business industry, for example, many recent law graduates cannot find sustainable work. These skilled young professionals may instead look abroad for employment, which could possibly deprive Estonia of its brightest workers.

Despite modest foreign investment, Estonia remains optimistic about its fiscal future. Although the country's small size holds it back from becoming a giant global economic force, it could instead focus on niche markets such as IT, biotechnology, and forestry. These new markets, as well as the stability of the recent adoption of the euro, may attract more foreign investment. Furthermore, if its manufacturing sector can continue to recover and grow, Estonia can earn a reputation for a healthy and stable economy.

Discussion Questions:
1) Estonia may look into more specialized manufacturing in technology to increase export levels. Can less-populated nations such as Estonia compete with global economic giants even in niche markets?
2) How much will the high growth potential in smaller Eastern European nations such as Estonia help push the entire EU forward on the path to fiscal recovery?

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