Economic growth decelerated as expected

According to the flash estimates of Statistics Estonia, GDP decelerated to 1.2% YoY in the first quarter of 2015. The seasonally and working-day adjusted GDP increased by 1.8% YoY. Compared to the previous quarter, economic growth decreased by 0.3%.

Deceleration of export growth and decrease in investments slowed the economic growth the most. Exports of goods grew by 3% in real terms in the first quarter. Decreased export volumes to Russia had the largest negative impact, but it was partially compensated by the fast growth of electronics exports. Electronic equipment has considerable contribution to the export growth and, in turn, to the economic growth. Unfortunately the orders of electronic equipment have decreased and its export has decelerated this year.

Although export growth has decelerated, the growth of import was even weaker in the first quarter, only 1%. This referred to the continuous decline in investments. In the second half of last year import growth accelerated, but that did not increase investments, which means that a large share of imported goods was used in intermediate consumption.

Private consumption contributed the most to the economic growth, supported by robust growth of real wages and solid consumer confidence. Lower prices of motor fuel helped consumers to save money or spend it on something alternative. Increased receipts of excise taxes and value added tax made a strong contribution to the GDP growth.

We expect Estonian economy to grow by 2.1% in 2015, mainly supported by strong private consumption. Steep decrease in exports to Russia will continue. Meanwhile the companies have increased their exports to other countries – to Sweden, the Netherlands, the US, Poland and Spain. If orders of electronic equipment will not turn to the growth in the coming months, it will have a negative impact both on our exports, as well as, on our economic growth. Although foreign demand will be weaker this year, we are more optimistic than few months ago. The European economy is improving, which gradually gives more opportunities to our exporters. We expect weaker euro to have a positive impact on our competitiveness and exports, but it will only affect about 1/3 of the exports, which is denominated in US dollars. Enterprise investments will remain modest, whereas public sector investments are expected to grow.

Source: Swedbank

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