Estonia GDP Shrinks Most Since 1994, Enters Recession

By Ott Ummelas

Aug. 13 (Bloomberg) -- Estonia's economy contracted the most in almost 14 years in the second quarter, becoming the second European Union economy to enter a recession since the start of the global credit crunch.

The economy shrank a preliminary 0.9 percent from the previous quarter, following a 0.5 percent decline in the January to March period, the Tallinn-based statistics office said on its Web site today. The economy shrank an annual 1.4 percent, the biggest decline since the third quarter of 1994 and the first annual contraction since the third quarter of 1999.

``The worsening in the global economy, rampant inflation and energy price shocks have eased the way for Estonia to enter a recession,'' said Violeta Klyviene, senior Baltic analyst with Danske Bank AS, said in a phone interview.

Stalled consumption and falling real estate investment cooled the Baltic economies of Estonia, Latvia and Lithuania last year after a boom since joining the European Union in 2004. The International Monetary Fund and other institutions have predicted the $16.4 billion economy of the former Soviet republic would fall into recession as consumers spend less and property prices fall.

Estonia is the second EU economy to enter a recession since global credit markets seized up last year. Denmark did so in the first quarter.

Klyviene forecast the economy will contract about 1 percent this year, compared with an earlier forecast of 0.8 percent. Economists expected an annual contraction of 0.3 percent, according to the median estimate of six economists in a Bloomberg survey.

Latvia's economic expansion slowed to a preliminary 0.2 percent growth in the second quarter, the slowest pace in 12 1/2 years, from 3.3 percent in the fourth quarter, the Riga-based statistics office said on Aug.8. Lithuania's economic growth slowed to 5.5 percent in the second quarter from 7 percent in the previous three months, Statistics Lithuania said on July 28.

To contact the reporter on this story: Ott Ummelas in Tallinn at oummelas@bloomberg.net