GDP growth is contributed by export and household consumption

GDP real growth by 2.1% yoy and 0.2% qoq in Estonia met our expectations. Economic growth was contributed by the strengthened manufacturing export growth and accelerated growth of the sector’s value added. Since the export of goods grew faster than import, respectively 6.6% and 3.5%, increased net export contributed strongly to the GDP growth. In addition, the decrease of the prices of certain goods and services contributed to the growth of household consumption, as well as retail trade. According to the preliminary data, investments decreased or had only marginal real growth in the the third quarter.

Although, the economic outlook of our main export partners has worsened somewhat, we expect that the foreign demand will improve modestly and will favour exports on these markets, especially considering our relatively small export volumes and lower prices with some partner countries. Approximately one-third of the decrease in export of goods, this year, has come from the Russian market. The main reason of the decrease is the worsening economic situation, including domestic demand in Russia. The direct impact of the sanctions on certain agricultural and food products imposed by Russia in August has been relatively small. Despite the downside risks have slightly reduced, they are still considerable and can threaten the expected improvement of the foreign demand.

Robust wage growth, in conjunction with the reduced labour taxation in 2015, will support the continued strong growth of household consumption. The expected improvement of foreign demand will contribute to the growth of investments. The more positive outlook for investments comes from the fact that the growth of corporations’ loan portfolio has accelerated this year and capacity utilisation rate of industrial corporations has gradually increased. The demand for dwellings supports the moderate growth of households’ investments.

We expect the moderate economic growth to continue in the last quarter this year contributed primarily by net exports and household consumption. According to our economic outlook (Swedbank Economic Outlook, Update- November 2014) published last week, the Estonian economy is growing by 2% this year and 2.5% in 2015.

Source: Swedbank

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