Recovery of demand to determine continuation of economic growth
Ülo Kaasik, Head of the Economics Department of Eesti Pank
According to Statistics Estonia's flash estimate, our GDP increased by 4.7% year-on-year in the third quarter of 2010. Seasonally and working-day adjusted GDP went up by 0.5% on the second quarter, posting a somewhat slower growth than in previous quarters.
The growth of foreign trade turnover remained rapid in the third quarter as well. Both exports and imports in current prices grew by nearly a third year-on-year. Export growth indicates that the economic activity of our main export partners is expanding quickly and Estonia's companies are making good use of it.
The export volume of industrial production reached a historical high in the third quarter. Irrespective of the continuously weak domestic demand, the sale of industrial production started to pick up in the domestic market as well, but it is still some 25% below the pre-crisis level.
Retail sale remained close to the level of the start of 2010 in the third quarter. The halt in the decline of retail sale is a sign that private consumption is stabilising. Consumers' purchasing power will slowly start to recover along with a pickup in employment. However, since unemployment continues to be high, the level of consumers' income and purchasing power will remain weak in the next years.
Though most of industrial enterprises still have underutilised production capacity, the existing capacity stock is running out along with rapidly expanding sales volumes. This refers to the need for additional investment. It is a favourable time for growth-oriented companies to take advantage of the opportunities arising from low-cost capital and the good availability of labour force.
Near-time economic growth in Estonia and also abroad will be affected by the withdrawal of the one-off growth-inducing measures. The impact of both fiscal policy stimuli and stocking up is fading. As a result, near-term economic developments will be shaped by the recovery of private consumption and investment.
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