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Rapid economic growth demands a budget surplus September 27, 2017

  • The economic forecast of the Ministry of Finance gives a plausible description of how the Estonian economy will develop in the near future
  • The Fiscal Council agrees with the Ministry‚Äôs opinion that the Estonian economy has surpassed its potential level
  • The Fiscal Council recommends that there should be a small surplus in the state budget for 2018

 The summer 2017 economic forecast of the Ministry of Finance, which shows the Estonian economy growing by 3.3% in real terms in 2018 and 6.9% in nominal terms, gives a plausible description of how the Estonian economy will develop in the near future, in the opinion of the Fiscal Council. The Fiscal Council finds that the risks of faster or slower growth are in balance.

The summer forecast puts growth in the Estonian economy in 2018 higher and more broadly based than the spring forecast did, and above the long-term sustainable rate of growth. The Ministry of Finance considers that the forecast GDP for next year is 0.5% above its potential level. The Fiscal Council estimate of the cyclical position of the economy also points to a positive output gap.

Despite the very rapid growth in revenue, the Ministry of Finance forecasts the general government budget will be in nominal and structural deficit in 2018. The Fiscal Council finds the forecast for revenues from corporate income tax are overly optimistic. This increases the risk that the budget deficit will be larger than planned.

The summer forecast puts the structural deficit for 2018 at 0.4% of GDP, which the government has decided while drawing up the state budget to reduce to 0.25% of GDP. The Fiscal Council supports the decision of the government to reduce the structural deficit. Given the position in the economic cycle, the Fiscal Council recommends there should be a small surplus in the state budget to ensure that the structural budget position remains in compliance with the budget rules.

The Fiscal Council's opinion and a more thorough explanatory report can be found here: 2017_summer_forecast_opinion.pdf

Additional information:
Raul Eamets
Chairman of Fiscal Council
Tel: 514 0082
Email: raul.eamets@ut.ee