Kaspar Oja, Eesti Pank, economist

Annual GDP growth slowed to 4% in the last quarter of 2011. Seasonally and working-day adjusted GDP decreased by 0.8% compared to the third quarter. The decline was not broad-based, reflecting developments in some single sectors. The slowdown in annual economic growth is in line with the expectations of Eesti Pank's economic forecast. The recent industry and confidence data indicate that economic activity has stabilised and the decline has not deepened. Annual growth is expected to slow in the coming quarters as well.

The quarter-on-quarter GDP decline was mainly due to shrinkage in industrial production in early autumn. It was caused by smaller energy production owing to warm weather and a decrease in the export of computers, electronic devices and optical equipment. The contraction in industrial production can also partly be attributed to uncertainty arising from the sovereign debt crisis in some European countries. The situation has, however, stabilised in recent months and month-on-month decline has stopped. Apart from the drop in industrial production in autumn, the sovereign debt crisis has not had a considerable effect on Estonia's real economy.

Despite lowered economic sentiment, domestic demand developments have been positive. Economic imbalances have eased compared to the previous crisis, so the resilience of Estonia's economy to external shocks has improved. This is confirmed by stable retail sales growth in the past months of 2011. The warm autumn favoured construction and since heating bills were also smaller, households had to bear smaller costs. In total, Estonia's 2011 economic growth was relatively rapid compared to previous indicators and to the average of Europe. This year's growth will be much slower, about 1.9%, according to Eesti Pank's economic forecast. Moreover, should external problems deteriorate, a recession cannot be ruled out, either.

  Viljar Rääsk
Eesti Pank
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