Data from Statistics Estonia show that GDP was down 0.7% over the year in the third quarter and was the same as in the previous quarter. The state of the economy has in general become better. The decline in the economy from the same quarter of the previous year has been smaller and smaller from quarter to quarter, and in recent quarters GDP has been no less than it was in the previous quarter.

The economy is not yet growing, but the lowest point of the fall has been passed.

The demand components of GDP show the recession was primarily in domestic demand, as consumption and investment fell. The largest part of the fall was in investment, which in recent years has been surprisingly large given the weakness of the economy. A fall in investment usually amplifies both decline and growth in the economy, but investment has until now largely been helping the economy keep its head above water. Weak domestic demand has also meant a reduced need to import goods, but exports have grown, largely on the back of increased exports of services.

The decline in the economy remains quite broad across sectors, but growth in agriculture and various services made a positive contribution to the economy, which was also reflected in growth in exports of services.

Caution is needed in interpreting the figures because of the contradiction between various volume indexes for output and components of GDP, which has also been seen in earlier quarters. The volume indexes for output suggest that the decline should be smaller in various branches of the economy, as the GDP data show value added in the energy sector falling by 4% for example, while electricity production increased by 24% over the year and heat production by 1%. One of the electricity cables connecting to Finland was out of operation during the summer, and so electricity prices in the Baltic states were relatively high, and the high market price made local electricity generating plants more competitive.

The GDP data show that value added in construction fell by 18%, but the volume index for output fell by only 5%. Indexes in manufacturing showed similar contradictions. The GDP data show that value added in energy, construction and manufacturing has declined over the past five years almost twice as fast as is suggested by the output volume indexes for those sectors (see Table). It is probable that the high inflation of recent years continues to pose a challenge to statistics.

The economic forecast published in September finds that the economy will grow in the coming year as the issues that have hindered it are resolved. Energy prices have for some time been lower than they were when inflation peaked, while interest rates are coming down, and this is supporting domestic demand at the same time that Estonia’s trading partners are forecasting that their own economies will strengthen, which should help Estonian exports to grow. Growth in the economy will be restrained next year however by the fiscal consolidation that will see tax increases and further price rises.

For further information:
Evelin Jürisson
Communications Specialist
Eesti Pank
6680 965
Press enquiries: [email protected]