Estonian economy seen shrinking 8.5 pct this year

TALLINN - Estonia's economy will contract 8. Finance Ministry announced Tuesday, as the government said it would attempt to adopt the euro in 0. The new forecast is a sharp revision from a 3. Baltic state's recession. Last year, gross domestic product contracted 3.6 percent due to a slowdown in industrial production and domestic demand. Finance Minister Ivari Padar said the new figures will affect Estonia's goal to adopt the euro before 2011 and also require reworking the budget.

In the light of the new forecast, options for joining the euro zone and in the long term, budget policy will certainly have to be reviewed," Padar said in a brief statement. Despite the publication of the latest grim forecast, the government said Estonia will seek to join the euro zone by Jan. 1, 2011 at the latest. Earlier this month Prime Minister Andrus Ansip said Estonia would like to adopt the euro on July 1, 2010 a target that some criticized as unrealistic.

The Finance Ministry also revised its annual inflation forecast for 2009 downward to 0.4. Estonia, currently undergoing its most painful recession since independence in 1991, already fulfills the national debt to GDP ratios a criteria for introducing the common currency.

However, the budget deficit will be an obstacle, and Ansip has urged lawmakers to draw up a supplementary state budget to bring the deficit down to 3 percent of GDP, the level required for adopting the euro.

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