Estonia sees GDP falling 3.5 pct next year

However, the ministry is banking on growth to return in 2010 with an expansion of 2.6 percent, although that is smaller than the forecast of 5.7 percent it issued in August. We expect growth to return in 2010 if export growth picks up with positive economic growth in our trade partners,' the ministry said in a statement. The ministry forecast inflation next year at 4.2 percent, down from a previous outlook of 6 percent.

Inflation is expected to hit 10.6 percent this year and 2.8 percent in 2010. This would bring the rate in line with EU criteria for euro adoption in 2011. But it is clear joining the euro zone won't just happen. We will have to make some tough decisions and be single minded in implementing them,' Finance Minister Ivari Padar said. The key to restoring economic growth and adopting the common currency is in sensible forward-looking economic and fiscal decisions,' he added.

After years of budget surpluses, the forecasts now expect a deficit of around 2 percent of GDP on average up to 2012. The ministry gave the forecasts as part of its updated convergence report to the European Commission, but the numbers will also make the government cut the budget for 2009 further. With 75 percent of the budget, including defence spending, determined by the size of GDP, lower growth forecasts cap spending to keep the deficit below 3 percent of GDP.

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