Tallinn - The Estonian economy is set to remain in recession until 2010 according to a forecast published Wednesday by the Estonian central bank, Eesti Pank.

According to the base scenario of Eesti Pank's 2008 autumn forecast, Estonia's gross domestic product will decline by 1.8 per cent in 2008 and by 2.1 per cent in 2009.

The economy should pick up again either at the end of 2009 or at the beginning of 2010, resulting in an average economic growth rate for 2010 of 3 per cent, Eesti Pank believes.

"Private consumption growth should recover in 2010 along with the revival of household confidence, whereas 2009 will be characterised by slowing wage growth and increasing unemployment," the forecast said.

"We expect growth in Estonia's main export markets will not die down totally and the mutual distrust in the global financial markets will pass," it added, before warning that if its expectations do not come true, Estonia should be ready for an even longer downturn.

By the end of 2010, inflation could have dropped sufficiently to meet the Maastricht criteria that would qualify Estonia to adopt the euro as its currency in place of the kroon, Eesti Pank believes.

Martin Hendre, head of private banking with Tallinn-based GILD Bankers, told Deutsche Presse-Agentur dpa that though Eesti Pank's prognosis was credible, it was far from certain.

"We are naturally sceptical about particular numbers and try to consider a range of different prognoses," he said.

"Overall, a slowdown and negative growth in near term is inevitable, but the duration of the downturn and the adjustment path is less certain," he added.

Hendre said that a series of forthcoming mergers and acquisitions would "reshuffle the company landscape in Estonia" and could bring more flexibility and innovation to the entrepreneurial environment. (dpa)