Thursday, September 14, 2006

Estonian Economic Growth Upwardly Revised

Estonia have for some time been what one might call "Europe's Hong Kong", which is to say a free market role model. Like Hong Kong, Estonia have had relatively limited government spending, a relatively low flat tax, unilateral free trade (until EU entry in May 2004 forced it to adopt EU tariffs and quotas) and a currency board (albeit based on the euro, instead of the U.S. dollar as in the case of Hong Kong).

Not coincidentally, it have also had very strong economic growth. In my article last year on the issue of trade deficits, I wrote based on then existing statistics that economic growth in Estonia was 6.5% for the previous 5 years. Now the numbers are even more impressive. And that is not just because preliminary second quarter numbers show a full 12% growth rate. But also because GDP growth in the preceding 5 years have been upwardly revised with 3.3%, or 0.7% per year, which would imply that growth was 7.2% instead of the 6.5% I wrote then. In addition, the level of GDP in the base year of 2000 was upwardly revised by 2.7%.

More good news is that while no breakdown of how the revisions have affected various expenditure categories seem to be available, but they indicate that virtually all of it is in the private sector (of course, since it is the government that is doing the spending, they should know fairly quickly how high it is and so it should be unaffected by revisions) , this means that the relative burden of government in Estonia should be downwardly revised. Moreover, since nominal GDP was upwardly revised slightly less than real GDP (4.9% versus 6%), this means that price inflation was downwardly revised.


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