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TALLINN, March 31 (Reuters) - Estonia's economy will shrink by 8.5 percent this year meaning budget policy and chances to adopt the euro will have to be reviewed, the Finance Ministry said on Tuesday.
The outlook was a revision down from the previous forecast of a drop of 3.5 percent this year and would come after a gross domestic product (GDP) fall of 3.6 percent in 2008.
"Estonia is undoubtedly going through a difficult time," Finance Minister Ivari Padar said in a statement.
"In light of the new forecast, options for accession to the euro zone and in the long term also budget policy will certainly have to be reviewed," he added.
Estonia has said it wants to adopt the euro in 2011, but that it will meet the criteria late this year.
Its main headache is set to be the budget deficit, which it has to keep at 3 percent of gross domestic product (GDP).
Meeting this target might necessitate even further budget cuts this year after a package of reductions backed in February.
The ministry saw inflation this year down to 0.4 percent from an annual average rate of 10.4 percent in 2008.
Estonia, like neighbours Latvia and Lithuania, is expecting sharp falls in the economy due to a slide in domestic demand and weak exports due to the global crisis.