Tallinn - As Estonia's Finance Ministry released a fresh forecast Thursday predicting an economic contraction in 2009 of 14.5 per cent - much more than previously expected - the prime minister remained upbeat and underlined the importance of adopting the euro.

The Finance Ministry's summer forecast is substantially worse than the spring forecast of an 8.5-per-cent contraction for the year.

In a press statement accompanying the forecast, Finance Minister Jurgen Ligi said there was cause for optimism despite the figure.

"Although the economy has deteriorated since the spring (forecast), you can see signs of stabilization emerging," he said.

Unemployment is set to rise to 14.4 per cent in 2009 and 16.8 per cent in 2010, the ministry said.

Speaking at a government press conference shortly after the release of the data, Prime Minister Andrus Ansip said he did not think the situation would be as bad as predicted by the Finance Ministry and stressed that Estonia must keep its sights on adopting the euro by January 1, 2011.

"For us to not join the euro something terrible has to happen," Ansip said.

On Wednesday, officials at Estonia's central bank said the country could meet the Maastricht inflation criterion for euro adoption on inflation by the end of this year but needed to work harder on reducing its budget deficit.

Ansip responded Thursday by saying a further 2.8 billion kroons (240 million dollars) need to be saved in order to reduce the deficit to the 3-per-cent of gross-domestic-product (GDP) threshold allowed by Maastricht.

Estonia's year-on-year GDP declined 15.1 per cent in the first quarter of 2009 and an estimated 16.6 per cent in the second quarter.

After a decade-long boom fuelled by cheap credit and a housing market bubble, the small Baltic state of 1.3 million people is wrestling with one of the European Union's deepest recessions.(dpa)