Economic growth accelerated in the third quarter

Statistics Estonia revised GDP growth to 2.2% yoy in the 3Q according to the second estimate (flash estimate was 2.1%). Compared to the previous quarter, Estonian economy grew by 0.4% swda.

Manufacturing and domestic trade contributed the most to the growth. Improved exports, especially of electronics and metal products supported the growth of the value added of the manufacturing sector the most, while sales on the domestic market have been quite stable throughout the year. The growth of the domestic sales came primarily from retail sales, supported by robust growth of real wages. In addition to these economic activities, improved VAT receipts gave one of the biggest contribution to the GDP growth as well. Economic growth was limited primarily by the decrease in the value added of construction, transport and real estate sectors. Construction volumes have declined already for the second year in a row. In the third quarter, construction of both buildings and structures decreased. Although, construction of buildings increased on the domestic market, the decrease came primarily from the sharp drop on the foreign markets. Weak demand, uncertainties on the external environment and competition have contributed to the protracted decrease on the value added of the construction and transport sector.

Growth of the domestic demand slowed down due to the sharp drop in investments (-10%) in the third quarter. Both enterprises’ and government sector investments decreased, while investments by household sector remained on the level of the same quarter a year ago. Energy sector contributed the most to the decrease in total investments. At the same time, investments in the manufacturing and ICT sector increased. Supported primarily by the increase in consumption of food products and transport services and goods, growth of private consumption accelerated to 5% yoy. Decrease in prices as well as increase in purchasing power of Estonian consumers contributed to the increase in consumption of the both product groups. According to our estimates real growth of net wages will accelerate next year and robust growth of retail sales and private consumption, in general, will continue.

After a year of the decease, export of goods increased by 5% yoy in the third quarter and contributed considerably to the GDP growth. Export of services has had moderate growth throughout the year. At the same time, decrease in investments has limited import growth (+2% yoy in the third quarter).

Statistics Estonia adjusted today its export and import figures according to the balance of payments. Surprisingly, although net exports increased considerably, GDP value and growth rate was kept unchanged. The revision was shifted to the statistical discrepancy and the GDP will be adjusted accordingly hopefully only during the next revisions.

As Statistics Estonia has revised down the GDP growth of the second quarter of this year, from 2.4% to 2.0%, we shall likely revise accordingly our GDP growth estimate of 2014 (2%) downwards in the beginning of next year, as well.

Source: Swedbank

 

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