Growth in the economy was boosted by extraordinarily fast growth in a few industries
Data from Statistics Estonia put yearly economic growth at 3.6% in the second quarter. A large part of the growth came from information and communication technology and from professional, scientific and technical activities. Without those areas there was a notable loss of momentum in growth.
The economy grew in the second quarter in line with the earlier forecast of the central bank, but as the external environment has weakened in the meantime, a sharper slowdown might have been expected. Without the exceptionally fast growth in information and communication technology and from professional, scientific and technical activities, overall growth in the quarter would have been around 2%.
There are three main reasons for the slower growth in the economy. The first is the weaker external environment as the outlook for manufacturing companies in Europe in the coming months is poorer than before. Estonian manufacturing production grew very well in the first months of the year despite the deterioration in economic confidence in Europe, but it was sharply down in monthly terms in June.
Growth was also held back by problems in the oil shale sector, primarily a decline in competitiveness in consequence of European environmental policies. The third reason for the slower growth is that there are signs of domestic demand weakening. Private consumption grew by only 1.1% in the second quarter, while the construction industry has grown much less strongly this year than last year.
Despite the slower growth, the economy overall continues to run well as unemployment is low, wages are rising rapidly and companies feel that the lack of labour is an important factor limiting production.