After worrying about economic imbalances, analysts are now focusing on how the government copes with the sharper than expected slowdown and the need for budget cuts.

Eyes are also on whether falling property prices lead to a rise in bad loans for banks, now dominated by Nordic groups.

"Certainly growth is going down and that is not a surprise," Parts said in the interview, conducted on Tuesday. "How much growth is going down, I don't know. It is clear that it is going down more than expected in October last year," he said, referring to when the government drew up its budget.

The picture would be clearer when new Finance Ministry forecasts come out on April 3. "We need a necessary correction and it (the future trend) very much depends on how businesses can be more reoriented to export markets," Parts added.

The strong growth of recent years had made people lazy to a certain extent, and a slowdown could prompt new thinking about export opportunities and investments, he said.

The government had to get its message across to business people that they must think of export markets and the state could help. "If we take a new active approach on the level of business, on the level of government then I do not think that anything bad will come. Next year could already be better," he said.

Prime Minister Andrus Ansip has given no sign of the size of the 2008 budget cuts needed, but daily Aripaev quoted former finance minister Aivar Soerd as saying the revenue shortfall was between 5 and 6 billion kroons ($500-$600 million).

Planned revenues this year were 96.3 billion kroons.

As in Latvia and Lithuania, the top banks in Estonia are SEB , Nordea, Danske Bank and Hansabank, which is owned by Swedbank, so the fate of the Baltic economies also affects Nordic investors.

Estonia plans a budget surplus of 1.3 percent of GDP this year. By law, the government cannot run a deficit.

Parts said the economy would benefit from more programmes for research, development and innovation as well as encouragement for foreign investors. A wise and timely use of European Union funds would also help, he said.

Source: guardian.co.uk