Economic growth stabilised in Q4

According to Statistics Estonia, the gross domestic product of Estonia increased by 0.7 per cent on a year-on-year basis in Q4 last year. The modest speed of growth is similar to the previous quarter and does not correspond to Estonia’s growth potential. The negative impact of one-off factors should weaken in the near future.

Various unfavourable factors independent of the Estonian economic environment had a negative impact on gross product growth late last year. Warm weather reduced added value in the energy sector, keeping demand and consequently prices low in our market region. Demand for electronic devices was in decline in the second half of the year due to the high level of the reference base. The low price of oil on the global market also reduced the production volumes and sale prices of shale oil. The logistics sector struggled because of smaller foreign trade volumes, while production in the construction sector is restricted by the continuing decrease in the number of new-builds and reconstructions.
Salaries continued to increase at a somewhat lower pace in Q4, and their growth remained below six per cent. Consumer confidence remained more or less stable and retail statistics promise excellent results at the end of the year. In addition to the strong increase in wages, people’s purchasing power was also increased by several extraordinary factors, such as the strong reduction in labour taxes, increase in child allowances and lower fuel prices. Since the confluence of these factors this year is considerably more modest and consumer prices will start going up again, we expect the growth of private consumption to slow down.
The summer growth forecast of the Ministry of Finance did not materialise overall and this year’s developments are also likely to remain weaker than expected, but the reasons for this are largely independent of us. The success of the three aforementioned areas of activity depends significantly on external factors, and Estonia’s export options are also limited by the unavoidable decline in the direction of Russia. Nevertheless, Estonia managed to increase its export footprint last year in terms of other goods. However, the constant acceleration of Estonia’s economic growth calls for improvement in local as well as global economic conditions.
Author: Madis Aben, analyst at the Fiscal Policy Department, Ministry of Finance
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