Last year’s economic growth surprised on the upside

n 2019, Estonian GDP growth was 4.3% y/y in real terms and 7.7% y/y in nominal terms. Although, the growth slowed from previous year, it was still strong and exceeded our expectations – our forecast, published in January, was 3.7%. In addition, GDP growth of the first three quarters was revised up (the third quarter growth was revised up by 0.6 pp).

In the fourth quarter economy grew by 3.9% y/y in real terms and 5.9% y/y in nominal terms. Seasonally and working day adjusted GDP grew by 0.9% q/q.

Economic growth was driven by ICT sector

In 2019, the main contributor to GDP growth was ICT sector – almost 30% of the growth came from this sector. Last year, higher contribution came also from professional and technical activities, wholesale and retail trade, agriculture and forestry, and manufacturing. Unusually high contribution to the growth came from net taxes on products, which was affected by VAT and excise duty on fuels. Manufacturing, which contributed positively in the first three quarters, did not contribute to economic growth in the fourth quarter. However, the slowdown was expected due to weakened foreign demand and worsened industrial confidence. Construction sector, that has been one of the main contributors to the economic growth in previous three years, contributed negatively last year. The largest negative impact to the growth came mainly from energy sector as electricity production declined due to the sharp rise in CO2 quota price.

Domestic demand was driven by strong investment growth

Last year, the growth of domestic demand accelerated to 5%. The main contribution came from investments, which increased by 13%. 3/4 of investment growth came from business sector investments, which was partly due to the base effect. The largest increase of business investments was in buildings and structures, and means of transport. Households’ investments also increased rapidly, while government investments decreased compared to previous year. The growth of private consumption gradually slowed and was 3% last year. We expect private consumption to slow this year as real growth of net wages should ease somewhat. However, private consumption should still be supported by high consumer confidence and strong financial situation of households.

As foreign demand worsened last year, export of goods has started to decline in the fourth quarter, while the growth of exports of services slowed. However, in the first three quarters of the year, the growth of exports of goods and services was very strong, which held the growth of total exports at 5% last year. We expect that weakening of the foreign demand should carry forward into this year and export growth should slow. As the growth of export exceeded import growth, the contribution from net export to the economy was positive.

Economic growth in Estonia is expected to slow

According to our latest Swedbank Economic Outlook published in January, economic growth in Estonia is expected to slow to 2.4% this year. Our forecast does not include possible impact of planned pension reform. It is also too early to measure possible impact of coronavirus, but if the spread of the virus would be soon under control, the impact to the euro area economy will be limited.

Source: Swedbank

Turnover increased in most economic activities

According to the preliminary data of Statistics Estonia, in 2019, turnover increased in most economic activities. Trade, manufacturing and information and communication enterprises contributed the most to the turnover of the business sector. The growth in the sector’s turnover was negatively affected mainly by energy and mining.

In 2019, enterprises sold goods and services for 64.2 billion euros, which is 5% more than the year before. Compared to 2018, the total expenditure of enterprises increased by 5%, including a 9% increase in labour costs. The number of persons employed as well as the number of hours worked also increased. The labour productivity of the business sector on the basis of turnover amounted to an average of 137,400 euros per person employed, i.e. 3% more than the year before.

Enterprises invested 3.2 billion euros, which is a fifth more than the year before. The investments were made mostly in machinery and equipment, and in buildings. Manufacturing, energy, transportation and storage and real estate enterprises accounted for more half of all investments.

In the 4th quarter of 2019, enterprises sold goods and services for 16.8 billion euros and invested 925 million euros.

Source: Statistics Estonia

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Construction volume stayed at the level of the previous year

According to the preliminary data of Statistics Estonia, in 2019, the total production of Estonian construction enterprises in Estonia and in foreign countries amounted to 3.2 billion euros, which is 3% more than in 2018. Taking into account only Estonian construction market, construction volume stayed at the level of the previous year.

The production value of building construction in Estonia and in foreign countries was 2.2 billion euros and the production of civil engineering works totalled 1.0 billion euros. Compared to 2018, the volume of building construction increased by 8% and the volume of civil engineering decreased by 6%.

The domestic construction market was affected the most by a decrease in the construction volume of civil engineering works. The construction of buildings, however, remained on the plus side due to the successful last quarter of 2019. The construction volume of Estonian construction enterprises in foreign countries increased by more than 50% compared to 2018 mainly on account of bigger volume of building construction. Construction in foreign countries accounted for 8% of the total volume of construction in 2019, compared to 6% the year before.

New dwelling construction has been on a growth trend since 2012. According to the data of the Register of Construction Works, in 2019, the number of dwelling completions was 7,014, which is 542 dwellings more than the year before. As in previous years, the majority of completed dwellings were situated in Tallinn, followed by the rural municipalities in the vicinity of Tallinn, and in Tartu county. The majority of completed dwellings had two or four rooms. The floor area of completed dwellings was 94 square metres on average.

In 2019, building permits were granted for the construction of 8,025 dwellings. The most popular type of residential building was a block of flats. The number of completed non-residential buildings was 1,410, with a useful floor area of 0.7 billion square metres – these were primarily new industrial, storage and trade premises. Compared to 2018, the useful floor area as well as the cubic capacity of completed non‑residential buildings decreased.

In the 4th quarter of 2019, the production value of construction amounted to 877 million euros, which is 9% more than in the 4th quarter of 2018. The volume of building construction increased by a fifth and the volume of civil engineering decreased by 8%.

Source: Statistics Estonia

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2.3 million foreign tourists stayed in hotels last year

According to Statistics Estonia, 3.8 million tourists stayed in Estonian accommodation establishments in 2019. The total number of nights spent was 7 million. 59% were foreign tourists and 41% were domestic tourists.

Last year, 2.3 million foreign tourists used the services of accommodation establishments. More than half of them came from neighbouring countries Finland (36%), Russia (12%) and Latvia (8%). The majority of foreign tourists came to Estonia on holiday (71%), almost a quarter came on business (23%) and the rest had some other reason for visiting. Foreign tourists spent 4.4 million nights in Estonia. 70% stayed in the accommodation establishments of Harju county, 10% in Pärnu county and 7% in Tartu county. Compared to 2018, both the number of foreign tourists as well as their nights spent increased by 5%.

The number of domestic tourists in accommodation establishments amounted to 1.5 million, which is 6% more than in 2018. Their nights spent totalled 2.6 million, which is also a 6% increase. 65% of domestic tourists were on holiday and 22% on a business trip. They mainly stayed in Harju county (25%), Pärnu county (15%), Tartu county (13%) and Ida‑Viru county (11%).

In December 2019, there were 280,000 visitors (159,000 foreign and 121,000 domestic tourists) in accommodation establishments, where they spent 193,000 and 312,000 nights, respectively. Compared to December 2018, more tourists came from Latvia (7%) and Russia (9%), while the number of tourists from Finland decreased by 4%.

In December, 998 accommodation establishments were available for tourists. 42% of the rooms and 35% of the bed places were occupied. The average cost of a guest night at an accommodation establishment was 38 euros, which is two euros less than in December 2018.

Statistical Classification of Regional Units of Estonia (EPS) based on the Nomenclature of Territorial Units for Statistics (NUTS). NUTS 3 level regions in Estonia are as follows: Northern Estonia: Harju county; Western Estonia: Hiiu, Lääne, Pärnu and Saare counties; Central Estonia: Järva, Lääne-Viru and Rapla counties; Northeastern Estonia: Ida-Viru county; Southern Estonia: Jõgeva, Põlva, Tartu, Valga, Viljandi and Võru counties.

Source: Statistics Estonia

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Estonia exports for 14.4 bEUR and imports 16.1 bEUR

According to Statistics Estonia, in 2019, compared to 2018, the exports of goods stayed at the same level and imports decreased by 1%. The substantial increase in trade in the first half of the year compensated for the decrease in the second half.

In 2019, trade stayed at the same level as in 2018

In 2019, Estonia’s exports of goods amounted to 14.4 billion euros and imports to 16.1 billion euros at current prices. The trade deficit was 1.69 billion euros and its decrease was mainly due to increase in the exports of agricultural products and food preparations. The largest deficit was registered in the trade in transport equipment and in raw materials and products of the chemical industry. The largest surplus was in the trade in wood and articles of wood and miscellaneous manufactured articles.

Estonia exported goods to 183 countries and imported goods from 145 countries. A positive foreign trade balance was recorded with 137 countries. The share of European Union countries (incl. the United Kingdom) in Estonia’s total exports was 70% and, in total imports, 79%. In trade with EU countries, exports increased by 3% and imports by 1%. The trade in goods with non-EU countries decreased – exports by 8% and imports by 7%.

The top destination countries of Estonia’s exports were Finland, Sweden and Latvia. The biggest increase occurred in exports to Denmark (up by 127 million euros) and Spain (up by 86 million euros), where fuels were exported more. Exports decreased the most to Singapore (down by 178 million euros) and Latvia (down by 71 million euros).

Similarly to previous years, the biggest exports from Estonia were electrical equipment, mineral products, and wood and articles of wood. The greatest impact on exports came from agricultural products and food preparations (up by 226 million euros), transport equipment (up by 142 million euros) and mechanical appliances (up by 106 million euros). Exports decreased the most for mineral products (down by 450 million euros) and electrical equipment (down by 184 million euros).

Goods of Estonian origin accounted for 71% of the total exports of goods. Compared to 2018, their exports decreased by 1% and re-exports increased by 3%. There was a significant decrease in the exports of mineral products and electrical equipment of Estonian origin. The exports of agricultural products and food preparations increased. The main export countries for goods of Estonian origin were Finland, Sweden and the USA.

The main countries of consignment in 2019 were Finland, Lithuania and Germany. Imports decreased the most from Belarus (decrease in the export of fuels) and the Netherlands (electrical equipment). Imports increased the most from Sweden (more cars imported), Latvia (increased fuel imports) and Lithuania (more electrical equipment imported). The main commodities imported to Estonia were mineral products, electrical equipment and transport equipment. The biggest decrease occurred in the imports of mineral products and electrical equipment and the biggest increase in the imports of transport equipment.

In December 2019, the exports of goods from Estonia amounted to 1.1 billion euros and imports to Estonia to 1.3 billion euros. Compared to December 2018, exports increased by 1% and imports by 3%. In December 2019, the growth in exports was affected the most by cereals and, the growth in imports, by fuels.

Source: Statistics Estonia

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