Growth in the economy in the fourth quarter was supported largely by the IT sector

Kaspar Oja
Kaspar Oja
Economist at Eesti Pank

Data from Statistics Estonia show that the Estonian economy grew by 4.3% last year. Growth in the fourth quarter was 3.9% over the year and 0.9% over the third quarter. Statistics Estonia corrected the rapid yearly growth in the economy in the third quarter upwards from 4.2% to 4.8%.

Slower growth in industrial output and reduced confidence among companies indicated much lower growth in the fourth quarter. However, growth was surprisingly fast in the fourth quarter as a disproportionately large part of the growth in economy came from the IT sector, where value added was up by one third. Indeed, most of the growth in value added came from the IT sector. It is natural for extraordinary factors to have a large impact on economic growth in small countries, where one transaction or sector can play a significant role in the economy.

Such evident dependence of economic growth on one sector means that a large part of the rest of society did not necessarily perceive the economy to be performing well.

The major part played by the IT sector in growth in the economy means that the economy is becoming ever more based around services. The same has happened recently elsewhere in Europe. Trade conflicts and stricter climate policy have applied the brakes in the industrial sector above all. Growth has slowed in manufacturing in Estonia too, and the oil shale energy sector is in decline. The service sector and retail have not yet felt the impact of those factors to nearly the same extent though.

The general development of the economy indicates a loss of momentum in growth though. Real growth in the economy was fast at the end of last year, but the economy measured in current euros grew notably more slowly than in the first half of the year. For profits to be earned and wages to be paid, it is more important how much is earned in euros, and not necessarily what volume of output is produced. Confidence indicators for companies weakened in the middle of last year in Estonia and elsewhere, and industrial output was down in monthly comparison. Companies in Estonia and in other European Union countries were more pessimistic about the future, and especially so in autumn last year. Their expectations have improved in recent months though.

The economic forecast expects that growth in the economy will be slower in 2020 because of weakness in the external environment and shortages of resources. The risks from the spread of the coronavirus have also increased, though these were not taken into account in the forecast.


Additional information:
Viljar Rääsk
Head of Communications
Eesti Pank
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