People have become more cautious in their consumption behaviour
Data from Statistics Estonia put Estonian GDP down 1.9% over the year in the third quarter, but up 3.3% on the previous quarter. This performance is better than that outlined in the baseline forecast scenario and is closer to that in the positive scenario. The statistics available so far show that the fall in GDP in Estonia in the third quarter was among the smallest in the European Union, but not much different from the results for other Northern European countries.
Developments in the economy continue to be affected by the restrictions put in place to stop the spread of the virus and by the uncertainty that remains in many sectors. The lifting of the restrictions put in place in the spring allowed the Estonian economy to rebound rapidly in the third quarter. The rapid improvement in the state of the economy indicates that the virus crisis may not have a long-term economic impact. It also helped the economy that there was no rush in the autumn to impose new restrictions.
The virus crisis does not impact the economy only through restrictions though, but also through increased uncertainty. This is shown by changes in the consumption basket of households, as not only has holiday travel been removed, but purchases have also been postponed where possible to allow savings. Sales have fallen for clothing and footwear for example and for new cars. This means that simply removing restrictions will not be enough to reduce the economic costs, as the level of infection needs to be low enough for people to feel confident about returning to economic activity.
Although the virus crisis has hit certain branches of the economy harder, many different sectors were affected by the decline in the third quarter. The situation was however better than in the second quarter in most branches of the economy. Value added in the accommodation and food service sector, which was most directly affected by the restrictions brought in because of the virus, was around a quarter less in the third quarter than a year earlier. Value added in manufacturing, which mainly exports goods, was down by around 7% meanwhile.
Estonia has so far managed to hold back the spread of the virus without imposing strict restrictions on everyday life, and so has avoided causing worse harm to the economy. The experience of several Central European countries this autumn has shown though that fortunes can change rapidly. The restrictions in spring were in place in March and April, when economic activity is seasonally below its average, but December is a very important month for many parts of the economy. This means that restrictions in activity in December could have more of an effect on businesses than they did in spring.