Amid the spread of coronavirus in the world and a massive collapse in oil prices, the Estonian economy has entered a phase of economic downturn. This was announced on Wednesday, March 11, by the Minister of Finance of the country Martin Helme.

“The numbers show that there has not been such a sharp drop since 2008. And it will have consequences in real life. The balance sheets of enterprises will sharply decrease, and banks will begin to withdraw loans or require additional collateral. Companies that finance themselves with bonds will no longer be able to do this, ”ERR quotes Helme as saying.

It is curious that as far back as October 2019, the International Monetary Fund (IMF) predicted the growth of the Estonian economy in 2020 by 2.9%. However, today, in an unpredictably changing situation, planning ahead is almost impossible, said the head of the Estonian Ministry of Finance.

“We see that everything happened within two months, in the European context - two weeks. The first conclusion is that we never had such poor “visibility” as it is now in the economy. We are not able to predict what will happen in two weeks, in two months, ”the minister added.

Recall that at the end of December 2019, authorities in Chinese Wuhan reported an outbreak of a respiratory infection of unknown origin. According to local experts, the cause of the disease was a new type of coronavirus. To date, according to the State Committee for Health of China, the number of people infected in China has exceeded 80.7 thousand, more than 3.1 thousand of them have died.

Moreover, according to available estimates, the number of infected people in the world exceeded 120 thousand. Outside of mainland China, most cases of the disease were recorded in Italy (over 10 thousand people), Iran (more than 8 thousand), South Korea (more than 7.7 thousand), Spain (more than 2 thousand) and France (1784).

According to experts, the spread of the disease has already provoked a massive reduction in trade and passenger traffic in the world. In particular, the infection has hit Estonia’s import and tourism industry.

“Although Estonia remains economically stronger than the neighboring Baltic states, it turned out to be more dependent on imports - more than 7% of the goods are brought to the country from China. A significant share of Estonia's GDP is made up of tourism revenues. The development of the coronavirus epidemic in the PRC, and then in the EU, led to the fact that the supply of goods from abroad sharply decreased along with the incomes of the tourism sector, ”Andrei Khokhrin, General Director of Ivolga Capital Investment Company, told RT.

Simultaneously with the spread of infection, the largest oil price collapse since 1991 occurred in March, to $ 31 per barrel. The reason for the collapse of quotations was the collapse of the OPEC + deal. Amid falling global demand for oil due to coronavirus, the largest countries - exporters of raw materials tried to coordinate an additional reduction in oil production in order to stabilize the market situation. Meanwhile, the parties did not reach consensus and decided to completely abandon all obligations undertaken earlier.

It is expected that now states will begin to actively increase oil production. Thus, the supply of raw materials in the global market can significantly exceed demand and will put pressure on prices. The current state of affairs may be a blow to shale production, including in Estonia. This was in a conversation with RT, said senior researcher at the Center for European Studies IMEMO RAS Vladimir Olenchenko.

“The Baltic Republic is actively processing shale raw materials into various kinds of oils, which are then exported. Traditionally, the production of such oils is cheaper at high oil prices, but it becomes unprofitable in case of a drop in quotations, ”the expert explained.

Moreover, the massive collapse of stock markets following the fall in oil prices triggered a massive outflow of capital from Estonia. According to Olenchenko, first of all, Sweden and Finland began to withdraw their money.

“Basically, Northern European capital is circulating in Estonia, and the money of Swedish and Finnish banks is of particular importance. But due to urgent problems in the economy, money is leaving the country, ”Olenchenko added.

Along with the loss of investment, the outflow of labor to the Scandinavian countries has recently become a serious challenge for the Estonian economy. About this RT said the president of the Russian Association of Baltic Studies Nikolai Mezhevich.

“There is an acute problem in the country of highly skilled labor migration mainly to neighboring Finland, where salaries are an order of magnitude higher than in Estonia. Now Finland accounts for up to 85% of all labor migrants from Estonia, ”said the expert.

Chain reaction

According to experts, Estonia may not be the only European country threatened by the economic crisis. As Martin Helme noted, today the European states are in a more difficult situation than during the global financial crisis.

“Both the global and the European economies have a higher debt burden than ten years ago. Unemployment is bigger. Competitiveness is worse than before the 2008 crisis. They said that there would be a smooth fall. Now, instead, the bubble burst deafeningly, ”said the Estonian minister.

According to the Eurostat analytical agency, in the IV quarter of 2019, the eurozone GDP growth slowed to 0.1%, compared with the previous quarter. The value was the lowest in the last five years. Moreover, according to the latest estimates of the Institute of International Finance (IIF), the total debt of the population, companies, financial institutions and governments of all countries of the eurozone is 338% of the region’s GDP.

According to Andrei Khokhrin, the further spread of coronavirus could lead to even greater drop in demand, as well as the destruction of trade and industrial relations in the eurozone. As a result, most European countries may be on the verge of an economic crisis.

“By and large, Estonia was the first country to voice the onset of the crisis, and stagnation trends have been observed in various EU countries for quite some time. Greece, Italy and even Germany can be mentioned as examples, where industrial production indicators, especially in the automotive sector, are showing a shocking decline. Thus, now the majority of European countries may be on the verge of recession, ”added Khokhrin.