The economy grew in the fourth quarter despite the weakness in the external environment



Data from Statistics Estonia show that the economy grew in the fourth quarter by 2.7% over the year and 1.1% over the quarter. Economic growth stood at 1.8% for the whole of 2014. Manufacturing, energy and retail gave a positive impetus to growth, while value added in construction and transportation and storage fell back.

Exports grew despite the weakness in the external environment with the main support coming from sales in manufacturing. Exports to Russia fell at the same time, though a large part of the fall was in goods originating in other countries, so the total effect on Estonia was small.

A large part of the growth in manufacturing came from the production of electronic equipment, but there was also growth in other sectors. Although electronic equipment was the largest source of growth in exports in manufacturing in the fourth quarter, the growth in value added was comparatively broad-based across other sectors. The expectations of manufacturing companies for production development in the sector are generally optimistic and though expectations for output in the sector are lower than they were before the crisis, they still remain close to the highest level they have seen in the past three years. Turnover in manufacturing may grow more slowly in future as orders for production of electronic equipment, where turnover is large, were down in December.

Labour income has increased its share in the economy, spurring consumption and the retail trade. It continued to grow fast in the fourth quarter, as is indicated by the increase of more than 8% over the year in social tax revenues. At the same time corporate profits have been falling for some time, and investment has been reduced, which can be seen in the fall in value added in construction and in the decline in imports of capital goods. Investment has mostly fallen in the energy sector, but it remains smaller than before the crisis in other sectors too. The low level of investment will not cause any problems in the economy in the short term, as weak demand means there is still spare production capacity.

The flash estimate for GDP growth for 2014 is in line with what Eesti Pank had forecast. Eesti Pank's forecast expects that the economy will grow by 2.1% in 2015.

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Hanna Jürgenson
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