Weakness in key trading partners inhibits growth in external demand

Kaspar Oja
Economist at Eesti Pank

The Estonian economy grew by 1.3% year-on-year in the second quarter and by 0.1% quarter-on-quarter, adjusted seasonally and for the number of working days. Although growth was quicker than in the first quarter, it was slightly slower than was forecast in June. The factor behind the slower rate of growth was external demand, which is improving only slowly as economic growth has been modest in Finland, Sweden and Russia, which are all among Estonia's main trading partners.

Although growth has remained weak so far in the external environment, the economic indicators for the developed countries have in general started to recover. Growth accelerated in the USA in the second quarter and was better than forecast. Economic confidence indexes in the European Union remain below their long-term averages, but have picked up rapidly in recent months. This indicates that there is a gradual recovery underway in Europe.

Growth in consumption and investment, which has underpinned the economy, slowed in the first half of the year. One cause of the slowdown in investment growth has been the reduction in investments made using the money received from CO2 quotas. Another is that capacity utilisation has been low in industry for some time, meaning that expansion plans have probably been put on hold. If external demand recovers, there will be a need to increase production capacity. Expansion plans are encouraged by low interest rates, which make investments more favourable.

Eesti Pank's forecast published in June predicted that the economy will grow by 2% in 2013.

For further information:
Viljar Rääsk
Public Relations Office
Eesti Pank
tel: 668 0745, 527 5055
Email: viljar.raask [at] eestipank.ee
Press enquiries: press [at] eestipank.ee