The better performance of the economy than expected allows the government to intervene less

Kaspar Oja
Kaspar Oja
Economist at Eesti Pank

Gross Domestic Product (GDP) in Estonia was 6.9% less in the second quarter than a year earlier in the data of Statistics Estonia. This means the economy has done substantially better than was forecast in spring. The fall in the economy has been very uneven though and circumstances are still difficult for many businesses. The fall in GDP was smaller than had been feared because of the recovery in export markets, the economic policy measures passed by the government, the generally good handling of the virus in Estonia, and the lag in the reaction of some branches of the economy to the crisis.

The crisis is not yet over and there is much uncertainty about how the economy will perform in the months ahead. Companies and households remain pessimistic and cautious about the coming months. A rise in coronavirus infections will lead to more restrictions being introduced on economic activity, which could deal a blow to the economic indicators. This means the government will have to remain ready to support the economy if needed. GDP falling by less than was feared indicates that the economy will not necessarily need as much support as was earlier estimated.

Monthly indicators show the economy probably hit its lowest point in April. Retail started to recover in May and exports did so strongly in June. Exports were revived by the rapid recovery of foreign markets, as the fall in the second quarter proved smaller than had been feared in many economies. As the Estonian economy is very open, the economic performance of other countries has a substantial impact on it. The statistics that are available for the third quarter are very open to interpretation. Some economic indicators suggest that overall economic activity had already returned to its level of a year previously in July. Confidence remains low among households and companies however, and does not point to further growth in the economy in the near future.

Among branches of the economy that focus on the domestic market, the construction sector saw value added grow in the second quarter. Construction volumes showed a decline in value added and the number employed in the sector fell, but the growth in the construction sector may reflect economic inertia, as construction projects cannot be simply halted overnight. This means the low point of the fall may appear in the construction sector in the coming quarters after some lag. The deceleration in growth in the construction sector was also slower than that in other sectors during the crisis of 2008.

Eesti Pank will publish a new economic forecast at the end of September.


Additional information:
Mart Siilivask
Eesti Pank
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Email: mart.siilivask [at] eestipank.ee
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