Estonia’s economy grew by 2.1% in 2014

Estonia’s GDP growth was revised up. GDP increased by 2.1% in 2014 and by 3.0% in the last quarter of 2014, year on year (initial estimates, published in December, were +1.8% in 2014 and +2.7% in the last quarter).

By sectors, growth in the value added in retail trade, manufacturing and professional, scientific and technical activities contributed the most, while a decrease in the value added in transportation and storage; construction; and accommodation and food services had the biggest negative contributions.

Domestic demand pushed GDP higher due to bigger inventories and household expenditures (mostly on food, transport, and clothing). Inventories increased due to higher consumption but also because of accumulating stocks before a substantial increase in excise taxes. Investments fell by 2.8%, primarily due to a decrease in the investments in the energy sector (who invested heavily in 2013). The exports of goods and services grew by 2.6%, supported by higher export volumes of electronics and logistics services in ports. The imports of goods and services increased at a similar pace, by 2.7%. Due to larger net exports in nominal terms, current account deficit was only 0.1% of GDP in 2014.

GDP is expected to continue growing at a similar pace, by 2%, in 2015. Growth is supported by consumption, which is boosted by a remarkable jump in households’ real incomes because of higher wages, modest inflation, and a decline in labour taxes. In January, retail sales were up by 5%, year on year. The growth of exports and investments will probably remain modest this year. Operating capacity in the manufacturing sector was at its historic average of 68% in January, but the volumes of orders have been declining in recent months.

Although the EU’s economy is showing some positive signs, our region is affected by the economic crisis in Russia, whose GDP is expected to decline by 10% in 2015-2016. The growth of exports of goods to Russia declined by 57% in nominal terms in January, compared with the same month last year, but only around one fifth of Estonia’s exports to Russia is of Estonian origin (the rest are coming from third countries).

Source: Swedbank

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