UPDATE 3-Estonia follows Denmark into recession in Q2

Wed Aug 13, 2008 9:00am EDT

 (Adds Estonian finance ministry commentst)
 By David Mardiste
 TALLINN, Aug 13 (Reuters) - Estonia said on Wednesday it
expected further economic contraction in the coming months after
data showed it became the second European Union country to fall
into recession.
 "In the coming quarters, negative economic growth is
expected to continue. Low consumer and investor confidence
indicators have continued to fall also in July," the Finance
Ministry said in a statement.
 SEB economist Ruta Eire agreed. "The numbers were expected
to be negative, but were more negative than we thought ... It
will be negative for the third and fourth quarters as well. Yes,
we are in recession," she said.
 News that the former high flying Baltic state has followed
Denmark into recession added to pressure on the shares of
Swedish banks, which expanded rapidly in the Baltic region in
recent years, but where investors now fear rising loan losses
during the downturn in Estonia and southern neighbour Latvia.
 A flash estimate from the Estonian statistics office showed
gross domestic product fell 1.4 percent year-on-year in the
second quarter and, seasonally and working day adjusted, fell
0.9 percent versus the first quarter. This was after a quarterly
GDP fall of 0.5 percent in the first three months of the year.
 The common definition of a technical recession is two
consecutive quarters of negative growth.
 
 DEEP AND PROTRACTED SLOWDOWN?
 On July 1, Denmark revealed its economy shrank 0.6 percent
in the first quarter versus the fourth quarter of 2007. The
Danish statistics office also revised fourth quarter GDP to a
fall of 0.2 percent from a quarter-on-quarter 0.3 percent rise.
 Amid weakness in the European banking sector overall, the
Estonian numbers added to falls in Swedish bank shares.
 SEB (SEBa.ST) and Swedbank (SWEDa.ST), the most active in
the Baltic, fell most, respectively down 4.81 percent at 123.75
Swedish crowns and 4.54 percent to 126.25 crowns by 1239 GMT.
 "SEB and Swedbank have figures from Estonia which are
weighting negatively, but the whole sector is also lower. The
market is down and the banks are down further. The Baltic is
weighing heavily today," said one analyst.
 The median forecast for the second quarter in a Reuters
survey of 4 analysts was for a GDP fall of 0.3 percent.
 Nordea analyst Anssi Rantala said GDP for the whole year in
Estonia would clearly be negative while Capital Economics said
Latvia would soon follow Estonia. "We think the (Baltic) region
is heading for a deep and protracted downturn," it added.
 The Estonian central bank expects GDP growth this year of 2
percent after 7.1 percent in 2007 and 11.2 percent in 2006.
 Latvian second quarter growth was just 0.2 percent in the
year. Lithuania had second quarter growth of 5.5 percent.
 (Reporting by David Mardiste and Patrick Lannin; Additional
reporting by Victoria Klesty in Stockholm; Editing by Mike
Peacock and Victoria Main)