The sources of growth in the fourth quarter were the same as those in previous quarters

Kaspar Oja
Economist at Eesti Pank
  • Expectations of companies for the coming months have improved
  • Reduced investment is a dangerous sign

The flash estimate from Statistics Estonia shows that the economy grew in the fourth quarter of 2015 by 0.7% year-on-year and 1.2% quarter-on-quarter. In the year as a whole, the economy grew by 1.2%, which is in line with the most recent Eesti Pank forecast. Such fast quarterly growth at a time when growth is weak in the industrial sector is good news. Expectations of companies for the coming months have also improved.

It is estimated that taxes on production made a major contribution to growth, though that contribution was still less than in earlier quarters. Growth was again positively affected by consumption, which was supported by both rising wage income and falling prices. The fall in the oil price reduced the costs of fuel and of heating for residential property, leaving households with more money to spend on consuming other goods. However, the impact of this on consumption was probably not significant in the fourth quarter as the growth in the turnover of retail companies was slower than the growth of household incomes.

As in the preceding quarters, growth was probably again affected negatively by the construction and transport sectors. Lower value added from manufacturing was caused above all by production of oil and electronic equipment. The fall in the output of oil processing was due to the fall in the oil price, which steepened during the quarter. Oil production in December was 35% lower than in November. The impact of this on other economic indicators will be felt most in the first and second quarters of 2016. The seasonally adjusted output of manufacturing as a whole was still higher than in the third quarter though. The survey of industry shows that capacity utilisation in manufacturing increased during the fourth quarter.

A further reduction in corporate investment could hinder any recovery in economic growth. Data from tax declarations show that corporate investment in the fourth quarter was 11% lower than a year earlier. The decline in investment may have been due to the fall in company profits, which probably continued in the fourth quarter as it had in previous quarters. The continued decline in profits is also indicated by data from tax receipts.

Expectations of companies for faster economic growth have clearly improved though. The index of economic confidence rose on a broad basis in the fourth quarter as confidence improved in industry, services, construction and retail sector. The high likelihood of a positive trend is also suggested by increased orders for the industrial sector for the months ahead. Orders for electrical equipment were up about 30% in the fourth quarter on a year earlier, which shows that production may increase significantly in the next few months.


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