andres lipstok : opportunities of the estonian economy in global competition opening address by mr andres lipstok, governor of the bank of estonia ( eesti pank ), at the conference " opportunities of the estonian economy in global competition ", tallinn, 23 may 2007. * * * excellencies, ladies and gentlemen! introduction it is a great honour to welcome you here in tallinn. fifteen years ago estonia regained its currency, the estonian kroon. as we know, money has three key functions – it serves as a unit of account, store of value, and medium of exchange. the rise and fall of an economy depends on how well these three functions are fulfilled. in smaller countries, such as estonia, the meaning of money goes beyond that. stable and credible currency becomes a national symbol of success. that is why the introduction of the estonian kroon is the most important event for our people from the early nineties. the new constitution, the declaration of independence, free elections – all these political events were perhaps more significant. but our own currency was and still is very special for most people. our historical background might partly explain the “ euro ” scepticism of estonians. the unfortunate truth is that joining the euro area is not very popular right now among estonians. people understand the importance of it but hesitations still persist, price rise fears being the most common. uncertainty is part of the cause as well : the exact date of the euro adoption is not known and there is no time to look deeper into the matter against the background of everyday life. nevertheless, estonians are one of the most pro - eu nations in the whole union. more than 70 per cent of us hold positive or very positive views on the eu. however, the origins of euro scepticism and eu optimism are the same. the european union and eu membership represent common european values, economic prosperity and security for our citizens. our own currency stands for the same values : credibility, prosperity and economic security. the estonian kroon represents these values for a very specific reason. namely, our currency has been pegged to the euro for already 15 years. i cannot resist joking that from the monetary policy perspective we are one of the oldest members of the euro area. a whole generation of estonians has grown up without having to ask what the interest rate of eesti pank is. instead, they know that the value of the kroon will not change and interest rate changes come from

deeper insight into the economy. this is the second most important factor that we took into account. economic growth in the first half of the year has been lower than expected. we predicted that business activity might slow down somewhat at the beginning of the year on the back of the following factors : the vat hike, a likely slowdown in growth of the global economy and demand for russian goods and services, and the implementation period of the major national projects scheduled for the second half of the year. some of these factors had a stronger effect than expected. in particular, budget expenditure dynamics. we will be able to take a deeper insight into the economic growth slowdown after detailed gdp statistics are released. however, the 2018 data released in april and preliminary q1 2019 estimates allow us to update our gdp forecast for this year. in particular, the revision is associated with lower export growth rates and a tempered outlook for growth in the global 1 / 3 bis central bankers'speeches economy and external demand. we have left the forecast for consumer and investment demand unchanged in view of the expected rise in public expenses in the second half of the year. as a result, we have updated the 2019 economic growth forecast from 1. 2 - 1. 7 % to 1 - 1. 5 %. third. proinflationary risks have declined over a one - year horizon. first, we no longer expect any deferred effects of the vat hike. second, the us fed consistently eased it rhetoric since the year start amid the expected slowdown of global economic growth. all else being equal, this constrains the risks of considerable capital outflow from emerging markets. in march - april, we noticed that the risks of accelerated growth in prices of certain food products diminished. overall, they remain moderate, though current food inflation was somewhat higher in may than in the previous three months, seasonally adjusted. moving forward, we expect that record crop areas, early spring, and overall favourable weather will bring a good harvest of vegetables, grains and other crops. domestic and global grain prices have been down since the beginning of the year. this contains proinflationary risks for food products. as regards monthly growth in prices of non - food goods and services, it held close to or below 4 % in annual terms in march - may. fourth. we factored in that inflation expectations of households and businesses remain elevated against both the inflation target and the minimum levels reached in the opening months of 2018. inflation expectations show