Estonian Human Development Report
Estonian Human Development Report - Eesti Koostöö Kogu
Estonian Human Development Report - Eesti Koostöö Kogu
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Table 1.4.1. Nominal and real GDP growth in Estonia 2000–2007<br />
Current prices,<br />
in millions of EEK<br />
Chain-linked volume by 2000<br />
Growth<br />
GDP deflator<br />
reference year, in millions of EEK<br />
of GDP<br />
deflator, %<br />
Nominal GDP<br />
growth, %<br />
Real GDP<br />
growth, %<br />
2000 95491.0 95491.0 1.000<br />
2001 108218.3 102808.2 1.053 5.3 13.3 7.7<br />
2002 121372.2 110847.5 1.095 4.0 12.2 7.8<br />
2003 136010.2 118736.5 1.145 4.6 12.1 7.1<br />
2004 151012.2 127682.2 1.183 3.3 11 7.5<br />
2005 173530.2 139373.2 1.245 5.3 14.9 9.2<br />
2006 205038.1 153835.9 1.333 7.0 18.2 10.4<br />
2007 238928.9 163578.1 1.461 9.6 16.5 6.3<br />
Source: Statistics Estonia<br />
fulfilled only by the countries in the euro zone. The third<br />
condition is also partially fulfilled by accounting GDP<br />
according to a common value by using exchange rates.<br />
The adoption of the European Union’s common currency,<br />
the euro, was compulsory for all EU member states (the<br />
only exceptions are Denmark and the United Kingdom).<br />
The Government of the Republic and the Bank of Estonia<br />
have set a goal of adopting the euro at the first opportunity,<br />
once Estonia is able to fulfil the necessary requirements.<br />
According to the Bank of Estonia’s assessment in<br />
2008, accession to the euro zone will be possible in 2011<br />
or 2012 [Ross, 2008], although this projection may change<br />
due to the economic downturn.<br />
In order to compare the real GDP of a country by<br />
time period, for instance by year, one must eliminate<br />
price changes. Likewise, in order to compare the GDP of<br />
a group of countries at a specific point in time, the differences<br />
resulting from their price levels must be eliminated.<br />
Since GDP is measured according the price levels<br />
of a specific country, the fourth condition is not fulfilled.<br />
While general price indices are used to eliminate the GDP<br />
price changes measured in a country at various times,<br />
Purchasing Power Parities (PPP) 3 are used to eliminate the<br />
impact of various price levels in groups of countries (e.g.<br />
the European Union),. With the help of PPP, the impact of<br />
international price differences is eliminated in GDP measurement.<br />
As a result of PPP conversion, the GDP in Purchasing<br />
Power Standards (PPS) 4 is arrived at. Expressed<br />
as PPS, we can arrive at a real international comparison<br />
of GDP. In other words, international value and price differences<br />
are eliminated and a “pure” GDP volume can be<br />
compared.<br />
<strong>Estonian</strong> GDP per capita in Purchasing Power Standards<br />
increased to 68% in 2007 in comparison to the average<br />
of the EU 27 member states. In comparison, the corresponding<br />
indicator for Latvia was 55% and for Lithuania,<br />
60%. According to PPS, GDP change increases with rapid<br />
GDP growth compared to the EU and the decrease in <strong>Estonian</strong><br />
population, while price increases in Estonia reduce<br />
this indicator.<br />
Figure 1.4.1. Comparison of GDP growth in Estonia<br />
and selected other countries in 2000–2007 (%),<br />
calculated by the chain method<br />
12<br />
10<br />
8<br />
6<br />
4<br />
2<br />
0<br />
2000 2001 2002 2003 2004 2005 2006 2007<br />
Source: Statistics Estonia, Eurostat<br />
Estonia<br />
Latvia<br />
Lithuania<br />
United<br />
States<br />
Japan<br />
EU27<br />
Figure 1.4.2. Increase of the <strong>Estonian</strong> GDP deflator<br />
and PPP in percentages in 2000–2007<br />
10<br />
9<br />
8<br />
7<br />
6<br />
5<br />
4<br />
3<br />
2<br />
1<br />
0<br />
2001 2002 2003 2004 2005 2006 2007<br />
GDP deflator<br />
Source: Statistics Estonia, Eurostat<br />
GDP Purchasing Power Parities<br />
As a result of the sudden deceleration of real GDP<br />
growth and the acceleration of price increases, the GDP<br />
growth in PPS also slowed in 2007. While this indicator<br />
increased by 6.8% and 6.9% in 2005 and 2006 respectively,<br />
in 2007 it was only 4.1% (see Figure 1.4.3.).<br />
3<br />
Purchasing Power Parities are exchange rates for currencies that equalize the purchasing power of various currencies.<br />
4<br />
The Purchasing Power Standard is an “artificial” unit of currency that equalizes the prices of all identical goods and services in<br />
comparable countries.<br />
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