The forecast for 2017 was cut to 2.6% from a growth rate of 2.8% put forward in the previous Economic Outlook published in November.

"Last year, foreign demand for Estonian goods and services decreased and had a strongly negative effect on the total economy," the fresh Swedbank Economic Outlook says.

In addition to the weakened demand, business sector turnover decreased due to the drop in producer and export prices.

"Robust wage growth, deflation, and reduced labor taxation improved households' purchasing power and contributed positively to domestic trade and other activities related to domestic consumption," the Economic Outlook reads.

It says the economies of Estonia's main trading partners are expected to improve in 2016, which should offer more possibilities to expand exports for enterprises dependent on foreign demand.

"However, we expect only a modest recovery of Estonian exports. This year should offer better possibilities to export more to the European and the US markets, while enterprises dependent on the Russian market and on global oil prices should not expect considerable improvement."

Swedbank said the recovery of producer prices, and especially of export prices, will be very sluggish and slower than the recovery of import prices in Estonia, as the euro is expected to stay weak this year.

"This could put additional pressure on business sector profits. However, as enterprises have integrated more with the global value chains, changes in currency exchange rates should have less impact on prices than they did years ago," it said.

Swedbank has lowered its estimate on consumer price information in Estonia for 2016 from 1.6% to 0.3%, citing in particular a bigger-than-expected decline in energy prices caused by an oversupply of commodities globally.

Changes in tax policy will push prices higher by an estimated 0.7 percentage point, as the excise tax on alcohol, tobacco, and fuels will be lifted and the value-added tax (VAT) exemptions reduced. Services, excluding transport services, will also become more expensive as strong wage growth will continue. In 2017, price growth will accelerate as prices of commodities in the world markets will recover somewhat and excise tax rates will be lifted again, the bank said.

The new inflation estimate for 2017 is 2.2%, down from a forecast of 2.5% contained in the previous Economic Outlook in November.

The rate of unemployment this year is seen to hit 6.3%, compared with the November forecast of 6.9%. "In 2016-2017, employment is expected to fall because of a lower supply and demand of labor as a result of investments in machinery. Employment is expected to decline in a few export related sectors that have been struggling with low demand and/or export prices," it stand in the forecast.

For 2017, an unemployment rate of 6.6% is forecast for Estonia, compared with the November forecast of 6.8%. Real wages are seen to grow by 4.9% this year and by 3.1% in 2017. Compared with the November estimate, the forecast for this year is higher by 0.6 percentage points but the forecast for 2017 lower by 0.6 percentage points.

Estonia's budget deficit will equal 0.2% of GDP this year and the budget will be precisely in balance in 2017. Both estimates are unchanged from November. The current and capital accounts will run a surplus of 3.4% of GDP this year and 1.8% of GDP in 2017, down from the estimates of respectively 4.9% and 3.1% offered in November.

Swedbank, one of Lithuania's largest banks, has left unchanged its November forecast for this year's Lithuanian GDP growth at 3.3%. The forecast for 2017 has also been left unchanged, at 3%.

However, the bank's forecast of Lithuania's GDP growth in 2015 has been revised down to 1.7%, from 1.8% envisaged last November.

"While looking at the global context and growing concerns about China and Russia, we tried to see the reasons to revise down Lithuania's economic growth forecasts but we did not find any. Therefore, we've left unchanged our forecasts for both this year and next," Swedbank chief economist, Nerijus Maciulis, said at a news conference on Tuesday.

This year, the country's economy would grow twice as fast as in 2015, he said.

"This year's growth will be faster as the approaching elections and higher budget deficit will fuel Lithuania's economic growth via the growth of minimum wages, the growth of wages in the public sector and the growth of households' purchasing power," the economist said.

As estimated by the bank's analysts, the unemployment rate should reach 8.1% this year before going down to 7.4% in 2017. Average wages should grow by 4.8% in 2016 and by another 2.8% next year.

Consumer prices should increase by 2% this year and by another 3% next year.

Exports should grow by 3% in 2016 and by 9% in 2017, and imports – by 5% and 10%, respectively.

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