Better to keep our seat belts well fasten

Article published on June 12, 2008
Article published on June 12, 2008
"May EstonianAir planes be the only ones to soft land in the upcoming months. Hopefully.” This provocative sentence we found in the deep sea of comments people is more and more posting anywhere about our situation might be chosen as the most significant for explaining feelings and the expectations of the Estonian economic operators.

And although the main  indicators and forecasts seem to confirm the rising skepticism , still some analysts and policy makers are considering it in another way.

The Estonian GDP suffered a sudden stop on the first quarter of 2008, while inflation rate kept growing as never before: a powerful enough combo for making us think that, at least by the end of this year, we should not expect any miracle nor any significant change. Someone tried to say that the slow down of the economy and the consumer spending have the potential of moderating the rise of prices creating the conditions for the so called soft landing of the economy within some months, but if inflation went on with its sustained path leading us toward a “stagflation” period of which end is almost impossible to devine.

The perverse double effect of inflation

 From one side it makes our lives more difficult by pushing prices higher in such a way that consumers  discover how their buying power decreased comparing to the past while, on the other one, it is also discouraging investments plans and so killing the possibilities of a fast recover of what used to be one of the most dynamic and interesting economies in the EU.

 And if these effects will last longer, it is easy to understand how domestic demand will not have the strength to support economic expansion. Something we hope not to live anytime soon.

But Maris Lauri – Hansapank analyst – recently tried to spread some optimism by explaining how her institute foresees  improvements on the economic indicator which are likely to happen even before the begin of 2009.

But the truth is that what will happen is hard to predict.

Will stagflation become recession? Or will we finally start smiling again getting the basis of a new, more conscious, development of our national economy?

At the moment no one can say it and no one even felt like seriously trying to do it.

So,   right now, we can just keep living with that strange feeling – anguish? –we have when the plane is about to land.

Later we will see if it has been soft or not.