Estonian GDP grew by 1.2% over the year to the fourth quarter of last year, and by 0.7% from the third quarter. This was the strongest quarterly growth since the end of 2021. Growth was notably faster than was indicated by the recently released flash estimate of GDP, and a little faster than expected in the most recent Eesti Pank forecast.

The monthly statistics have shown growth picking up for some time now. Exports from manufacturing strengthened in monthly terms in the second half of last year, which was seen first in exports to the euro area but then also in exports outside the euro area in the fourth quarter. The expectations of companies for growth in the months ahead have also been improving gradually.

The statistics do not yet show any sharp improvement in the economy though. Corporate expectations have become firmer this year and some growth is forecast, but not a rapid rebound. Business survey estimates of cyclical indicators improved noticeably at the start of the first quarter though, as labour shortages were again felt more sharply. This shows that companies are again planning to expand and that there is no longer enough available labour for everyone, as is usually the case. Corporate assessments of the position of the business cycle are still less positive than the historical average, which means the economy has improved but still remains below its earlier level.

The economic statistics continue to show a disconnect between different indicators. The growth in value added in manufacturing was much better this time than may be understood from output volumes. Consumption, investment and exports among the demand components of GDP could not explain the growth in the economy, and so a large part of the growth found with the consumption method consequently came from change in inventories and statistical discrepancy. Private consumption and exports increased, but there was a steep fall in investment. Reassuringly though, the fall in investment came from government investment dropping, not corporate investment. It is probable that some of the state investment planned at the end of the year was postponed, as there was a lot less government investment than had been forecast.

Private consumption was quite strong partly because of purchases of cars at the end of 2024 in anticipation of the introduction of the car tax at the start of 2025. This probably had quite a small impact on economic growth though, as no cars are actually produced in Estonia and increased purchases of cars shows up primarily in growth in imports.

Although the economy has started to grow, there remains a lot of uncertainty around its future track. A small and open economy does not benefit from being able to impose excise duties and trade barriers, and there is geopolitical uncertainty on top of that. It is possible that businesses will anticipate tariffs and start to account for future taxes in their prices, which will hurt global trade even if the tariffs are ultimately not applied.

Additional information:
Hanna Jürgenson
Communications Specialist
Eesti Pank
Tel: 56920 930
Press enquiries: [email protected]