A cooling of growth in the Estonian economy

Having grown strongly until the end of 2017, the euro area economy is now showing the first signs of weakening, and the European Central Bank has forecast slower growth ahead, said Eesti Pank economist Rasmus Kattai at a conference of Estonian food industry association. As exports provide around 80% of Estonian GDP, a cooling in the economy of the euro area would also affect the Estonian economy.

The Estonian economy grew by around 5% last year and this growth was driven by growth in the export-oriented industrial sector as well as by domestic demand. Slower economic growth in foreign markets could thus lead to slower growth in Estonia too. Growth will also slow because there will not be the same support as in earlier years from increased activity by people in participating in the labour market and higher employment, unused capacity or loose monetary policy. Slower growth is to be expected in any case, as the Estonian economy is already running at above its average sustainable level and it is not possible to be permanently above your own average level.

Source: Bank of Estonia
Author: Rasmus Kattai, Economist at Eesti Pank

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