Second quarter drove Estonia into recession

According to revised data, Statistics Estonia lowered GDP growth for the second quarter of 2013 to 1%. In a quarterly comparison, GDP growth was negative for the second quarter in a row (-0.1% in the 1Q and -0.2% in the 2Q), having driven Estonia into recession.

There was no significant deceleration in GDP growth in current prices. In the first quarter, GDP growth even accelerated. GDP deflator, which describes price changes in the economy, quite surprisingly grew, although price growth for most products decelerated.
Domestic trade and real estate enterprises contributed the most to the economic growth. Manufacturing, especially electronics, also had an important contribution. Transport sector had a negative contribution to GDP growth. Transport enterprises had a largest decrease in profits as well in the second quarter.
Private consumption grew by 6% in annual comparison, accelerating for the second quarter in a row. It is supported by the growth in real wages and improvement of consumer confidence. Further growth of private consumption depends on the wage, employment and consumer confidence developments. Although economic growth has decelerated, wage growth continues to accelerate, which has pushed up unit labour cost for the fifth quarter in a row. Thus, that fast wage growth is not sustainable. At the same time employment growth will decelerate.
Investments decreased by 8% in the first quarter and 1% in the second quarter. Enterprise investments, which grew by 6% in annual comparison, contributed the most, mainly due to the large investments in the machinery and equipment by the energy sector. Government investments have been decreasing for the second quarter in a row and will likely do so in the third quarter as well.
The growth of import of goods and services has been faster than exports since the beginning of 2011 with an exception of 1Q 2013. In the second quarter exports grew by 5% and imports by 8%. In current prices, exports were larger than imports. Dispatch of chemicals and electronics contributed the most to the 9% growth in the export of goods.
As foreign demand is slowly improving, we expect economic growth to accelerate gradually. We keep our GDP forecast for 2013 at 1.9%.



Source: Swedbank


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