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UPDATE 2-Estonia sees 2010 drop at 0.1 pct, upbeat on euro

Published 01/28/2010, 08:35 AM
Updated 01/28/2010, 08:39 AM

* Estonia sees return to growth in 2011

* Budget deficit to stay under EU levels

* Considers borrowing to finance deficit (Adds details of other forecasts, minister comments)

TALLINN, Jan 28 (Reuters) - The economic slide of euro hopeful Estonia will brake this year and recovery will come in 2011, the Finance Ministry said on Thursday, repeating that the conditions to adopt the single currency were met in 2009.

The ministry said in its medium-term fiscal report to the European Union, the convergence report, that it had revised its forecasts for 2010 to show a contraction in the economy of 0.1 percent rather than the previously forecast fall of 2.0 percent.

"In 2011 we expect a recovery in economic growth (3.3 percent) which is based most of all on exports," it said, also forecasting gross domestic product (GDP) expansion of 3.7 percent in 2012 and 4.0 percent in 2013.

Estonia has been in a deep recession since 2008, but has adopted tight fiscal policies to keep its public sector budget deficit under 3 percent of GDP to meet the Maastricht criteria and join the euro zone from 2011.

"The convergence programme says Estonia meets all the conditions necessary for the introduction of the euro currency in 2011," the ministry said.

The programme forecast a budget deficit of 2.6 percent of GDP in 2009, 2.2 percent in 2010, 2.0 percent in 2011 and 1.0 percent in 2012 before returning to a small surplus of 0.2 percent of GDP in 2013.

Finance Minister Jurgen Ligi said the government was still considering ways to finance the deficit.

"We have not made a decision on how to finance the deficits, but we are looking at not depleting all our reserves and for this year we will use 50/50 (reserves and borrowing)," he told Reuters after a news conference on the report.

He said the government was considering borrowing from banks.

Estonia has one of the lowest debt levels in the EU, but the convergence report forecast it to rise from 7.8 percent of GDP in 2009 to 14.3 percent in 2013. (Reporting by David Mardiste; editing by Stephen Nisbet)

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