Tallinn - The Estonian central bank, Eesti Pank, dropped its outlook for economic growth Wednesday in the latest sign that the recession hitting the Baltic region will be worse than previously forecast.

"According to Eesti Pank's spring forecast, this year's economic downturn in Estonia will be around 12 per cent. The majority of economic experts do not expect growth in the world (and also in Estonia) to resume before 2010," said an economic policy statement released by the bank.

Growth would return in 2011 at a rate of almost 5 per cent, the document said.

The bank's figures were notably more pessimistic than its own previous forecast of a 5.5 per cent drop in GDP and a finance ministry estimate released at the beginning of April which suggested the Estonian economy would shrink by 8.5 per cent in 2009.

Eesti Pank was at pains to stress that the replacement of the national currency, the kroon, with the euro should remain a priority for policymakers.

"The objective of adopting the euro needs to be borne in mind when planning any economic policy measures. A postponement of the euro objective would make the return to a sustainable convergence path more challenging in the current global financial crisis situation," the central bank said.

In order to keep its budget deficit below the 3 per cent of GDP limit demanded by the Maastricht criteria for eurozone entry, the government will need to find an extra 8.5 billion kroons (700 million dollars) for the state budget, the bank predicted.

Bank governor Andres Lipstok told reporters that the government led by Prime Minister Adrus Ansip would have to cut expenditures even more than previously anticipated in order to find the extra money. (dpa)