The economy will probably grow more slowly this year



Growth in the Estonian economy over the year was 4.2% in the fourth quarter and growth from the third quarter was 2.2%. It is probable that growth will slow during this year though from the impressive rate of recent years to a more normal pace. The economy exceeds the potential output in European countries, labour shortages are biting, and so it is unlikely that the rate of growth will be maintained.

Economic sentiment indexes in Estonia and in Europe as a whole have fallen in recent months, which indicates the expectations of companies and households for the future. Although expectations of growth are more modest, it is still expected that growth will continue, albeit at a slower rate, not that economic activity will actually decline. The large share of exports in the Estonian economy means that its performance follows the same trends as the rest of Europe.

Labour shortages, which have been much discussed in Estonia, are also to be found in other countries in the European Union. They have strengthened the upwards pressure on wages, and in some countries strikes have become more common, leading to interruptions in production chains. These interruptions can cause a temporary fall in output volumes, as has been seen in car manufacturing.

Equally, the political environment has become less certain, which also affects the outlook for industry and foreign trade. Industry in Europe has been constrained in the past six months by the new environmental requirements for cars. Increasing protectionism around the world affects Europe and Estonia indirectly through a reduction in global trade.

The Estonian economy has been performing well given the background of general developments in Europe. It appears that the export-dependent manufacturing sector has avoided the problems that have affected the rest of Europe in recent months. At the end of last year the output of manufacturing companies grew relatively fast and survey results from January and February indicate that it has continued to do so, though a little more slowly. However, the initial data also show that growth in the construction sector, which has so far been the motor of economic growth, has started to slow a little.

For further information:
Eva Vahur
Public Relations Office
Eesti Pank
Tel: 668 0965, 5330 0619
Email: [email protected]
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