Estonia’s GDP at current prices was 20.9 bEUR in 2016

According to Statistics Estonia, in 2016, the gross domestic product (GDP) of Estonia increased 1.6% compared to 2015. In the 4th quarter of 2016, the Estonian economy grew 2.7% compared to the 4th quarter of 2015.

In 2016, the GDP at current prices was 20.9 billion euros.

The year was characterised by a slow but steady growth of the GDP. In different quarters of 2016, the increase in value added in the activities of trade, information and communication as well as transportation influenced the growth of the Estonian economy the most. In the last three years, transportation slowed the economy the most, and its decline continued in the 1st quarter. However, from the 2nd quarter onwards transportation contributed positively to the GDP growth at real prices.

In 2016, more than half of economic activities influenced the economy positively. Information and communication contributed to the increase of the GDP the most due to the strong growth in software development services. The growth of value added of trade was the highest in the comparison of the last four years mainly due to a stable growth in retail and wholesale trade. Although the value added of the largest Estonian activity, manufacturing, decreased in the 1st quarter, the value added increased 0.8% in total in 2016.

In 2016, net taxes on products influenced the Estonian economy positively. The receipts from value added and excise taxes grew. In addition, payments of subsidies increased.

After a decline in 2015, the real exports of goods and services rose by 3.6% in 2016 (including the exports of services by 4.9%). The real imports of goods and services increased 4.9%. The exports of goods and services were mainly affected by increased exports of electrical equipment, wood and products of wood and electronic equipment. The imports of goods and services was affected by the rise in the imports of motor vehicles, base metals, pharmaceutical products and chemicals. The impact of the exports and imports of the remaining commodity groups was modest. Net exports, i.e. the difference between exports and imports, was positive in 2016. The share of net exports in the GDP was 4%, which was the same level as in 2015.

In 2016, domestic demand increased 2.6%, affected mainly by increased household consumption expenditures. The increase in household final consumption expenditures was mostly caused by a rise in expenditures on transportation, food and recreation. In addition, the general government and non-profit institutions’ final consumption expenditures increased. Real gross fixed capital formation decreased 2.8% mainly due to less investments in buildings and structures by enterprises and in equipment and machinery by the government sector. Domestic demand grew faster than the GDP. The total final consumption expenditures, gross fixed capital formation and changes in inventories was smaller than the GDP by output method, totalling 97.7% of the GDP.

In 2016, the GDP grew faster than the number of hours worked and persons employed.  Therefore, labour productivity per employee increased by 1.4% and labour productivity per hour worked increased by 1.2%. At the same time, the labour costs related to GDP production have increased. Unit labour cost grew 4.2% compared to 2015.4th quarter of 2016

The GDP at current prices was 5.6 billion euros in the 4th quarter of 2016.

In the 4th quarter of 2016, the Estonian economy grew 2.7% compared to the 4th quarter of 2015. In the 4th quarter, the seasonally and working-day adjusted GDP increased by 1.9% compared to the 3rd quarter of 2016, and by 2.8% compared to the 4th quarter of 2015.

The GDP in the last quarter of 2016 was driven the most by a rise of value added in the information and communication activity due to an increase in software development services. Furthermore, the value added in trade, transportation, energy, administrative and support service activities, manufacturing and construction also provided significant support for economic growth. Compared to recent years, more economic activities contributed positively to the GDP growth.

Contribution to the GDP growth, 4th quarter 2016

In the 4th quarter, the number of persons employed and hours worked decreased, but the GDP increased. Therefore, compared to the same quarter of the previous year, labour productivity per employee and labour productivity per hour worked increased. Unit labour cost increased 2.5% in the 4th quarter of 2016.

After decreasing in the 3rd quarter, in the 4th quarter of 2016 the domestic demand grew 3.7% in real terms, compared to the 4th quarter of 2015. Domestic demand was mainly affected by enterprises’ increased inventories of goods and increased final consumption expenditures. In the 4th quarter, real gross fixed capital formation fell 5.5% mainly due to a decrease of investments in buildings and structures by the enterprise sector. At the same time, investments of enterprises in equipment and machinery increased. For all other sectors, gross fixed capital formation grew compared to the previous year.

In the last quarter of 2016, the real exports of goods and services increased 2.7% and the real imports of goods and services 2.4%, compared to the same quarter of the previous year. The exports of goods and services grew due to an increase in the exports of electronic equipment, mineral products and wood and of products of wood. The imports were affected positively by other transport equipment and base metals. The share of net exports in the GDP was 3.3%.

Source: Statistics Estonia (see better graph here)

Price rises in February were primarily due to higher prices for oil and food

  • Inflation continued to rise in Estonia, and it was at its fastest for four years in February
  • Inflation is being driven by higher global prices for oil and food, and by higher excise rates
  • Core inflation has also risen in recent months because of service prices

Data from Statistics Estonia show that consumer price inflation was 3.4% in February, with prices up 1.3% on the previous month.Preliminary estimates put inflation in the euro area at 2% and prices had stopped falling in all the euro area countries according to the latest data from January. Higher inflation reduces the purchasing power of consumers, but it could be the long-awaited sign of increasing economic activity.

Inflation has risen mainly because of external factors, particularly the rise in the price of oil and food. Food prices are rising on the Estonian and European Union markets mainly because the oversupply that was exacerbated by the loss of the Russian market in 2014 has relented. A second reason is that the weather has been bad in southern Europe this year and the bad weather has harmed fruit and vegetable crops. Prices for unprocessed food, including garden produce, rose in the euro area at a record rate of 5.2% in February. More stable rises in commodities prices will be supported by the narrower fluctuations in the oil price on world markets after its jump to 55 dollars at the end of November following the OPEC agreement to cut production. Commodities prices on world markets are still relatively low in historical terms.

The causes of higher inflation in Estonia are about the same as those elsewhere in the euro area. Around one quarter of inflation in February was due to motor fuels being 23% more expensive than a year earlier, and the continuing broad-based rise in prices for food products. One reason that inflation in Estonia has been higher than the euro area average is that excise rates have risen. Excise on motor fuels, alcohol and tobacco lifted inflation by around one percentage point in February. Core inflation, which covers manufactured goods and services, has also picked up a little in recent months, and it reached 1.3% in February. It is mainly prices for services that have risen, while prices for manufactured goods have climbed more slowly because of cheap import prices.

Inflation in Estonia and euro area

Source: Bank of Estonia (see better graph here)

Author: Sulev Pert, Economist at Eesti Pank

Exports led to a record surplus on Estonia’s current account in 2016

  • The current account surplus for 2016 was the largest since independence was regained at 2.7% of GDP
  • Reinvested income is preferred to new money for use in investment
  • The net international investment position continued to improve

The current account surplus passed half a billion euros last year for the first time ever. The large surplus was caused by large-scale exports of goods and services, which picked up particularly in the second half of the year. The surplus in the current account was around 100 million euros more than in 2015 mainly because the outflow of income was smaller. The increase in the current account surplus was clearly slower than in recent years, which is in line with Eesti Pank’s economic forecast.

Alongside the good results for exports there was continuing growth in the fourth quarter of 2016 in imports of goods and services.Imports of goods increased by 3% over the whole year, and imports of services by 8%. In the first half of the year the growth in goods imports was underpinned by capital goods brought in as investments, but the rate of growth could not be maintained in the second half of the year and less was imported as capital goods in the fourth quarter than a year earlier. This indicates companies are being careful in investing and overall investment activity is recovering more modestly than expected. This is confirmed by the financial account of the balance of payments, which indicates that the direct investment made in the equity capital of foreign-owned companies was less than the amount taken out from them, meaning no new money came into the country for investment in 2016.

Estonian assets abroad grew more in 2016 than external liabilities, so Estonia was a net lender for the whole year. The net international investment position, which is the difference between external assets and external liabilities, climbed in consequence to -37% of GDP for the whole year. The current account surplus gives hope that the net investment position may improve, and if the current trend were to continue, Estonia could reach the -35% recommended by the European Commission within a few years1.

1 The European Commission looks at the net international investment position as one of the indicators of possible imbalances in an economy, and it has set the threshold for where the danger appears at -35% of GDP.

Source: Bank of Estonia

Author: Kristo Aab, Economist at Eesti Pank

Economic growth in 4Q of 2016 was above expectations

In 2016, economic growth reached 1.6% in Estonia. Compared to 2015 it is a 0.2 percentage point increase, but nothing to be too proud of yet. Nominal growth of GDP accelerated from 2.5% in 2015 to 3.3% in 2016.

In the last quarter of 2016 Estonian economy grew 2.7%, which is the highest quarterly growth rate in two years and was above our expectations. Unfortunately the main contribution to this growth still came from private consumption whereas contribution of investments remained negative. Investments grew only in the second quarter and thereafter plummeted again. This means that 2016 was the fourth consecutive year in a row where investments decreased.

In 2016 ITC and domestic trade sectors had the largest positive and agriculture the largest negative contribution to GDP growth. Negative contribution from agricultural sector comes from a 30% decline in value-added as crop yields compared to averages were better in 2015 and worse in 2016. In the last quarter of 2016 economic growth was relatively broad based with only a few sectors that contributed negatively.

Households’ investments into dwellings grew rapidly in 2016 whereas investments of enterprises and general government were in a decline. The main positive contribution to enterprises investments came from transportation equipment whereas investments into buildings and machinery are still lagging. In the last quarter of 2016 enterprises’ investment into machinery has somewhat improved, but growth remains negative compared to last quarter of 2015.

On a positive note export growth in 2016 was 3.6% compared to -0.6% decline in 2015. The contribution of net export to growth remained negative in total, but in the last two quarters of 2016 export growth has been stronger than import. This implies that Estonian exporters are gaining strength, although export growth in the last quarter of 2016 somewhat decelerated.

Private consumption has remained the engine of growth due to very strong wage growth. This is about to change as this year prices will increase and real net wage growth decelerates rapidly. In 2017 we expect smaller contribution to growth from private consumption and larger contribution from investments and government expenditure. Contribution of private consumption to growth will somewhat increase in 2018 when non-taxable income threshold is raised. We expect the economy to grow 2.2% this year and 2.8% in 2017.


Source: Swedbank

Estonia’s 2017 inflation will be around 3 pct

  • Consumer price inflation climbed as oil and food became more expensive on the world market
  • The Eesti Pank December forecast expected average inflation for this year to be around 3.0%, and current developments are in line with that


Data from Statistics Estonia show that the consumer basket was 2.7% higher in price in January than a year earlier and 0.4% higher than in December. The harmonised index of consumer prices for the euro area was up over the past 12 months by 1.8%.

The faster rate of rise of consumer prices has been caused by rises in global energy and food prices. Commodities prices started falling on world markets in 2011, but in early 2016 the prices of oil and food started to rise again. The price of metals and other inputs for manufacturing has also risen globally in recent months. The price of oil in dollars is still half what it was in 2011, and prices of manufacturing inputs are 33% lower. The price of commodities is made less favourable though by the depreciation of the euro against the dollar by around 23% over six years. The lower exchange rate does however favour exports from the euro area, and a recovery in economic growth.

Inflation for food products in the European Union’s internal market is being led by dairy products. The farm-gate price of milk in Estonia has risen back to its level of 2014, before sanctions were introduced by Russia. Together with prices for dairy products, those for fruit and vegetables have risen rapidly as the weather in southern Europe has not been favourable for farming. Vegetables rose by 10% in price over the past two months, and fruit by 4.8%. The immediate cause of this is that around 40% of the fresh vegetables consumed in Estonia and 90% of the fruit and berries are imported. Around one third of the imported vegetables come from sources outside the euro area, such as Poland and North Africa, and so the higher prices may also be due to the depreciation of the euro at the end of last year. Prices of fruit and vegetables have also risen and fallen sharply before, though the effect of a rise in prices usually takes about half a year to ease.

The Eesti Pank December forecast expected that the food basket for consumers will rapidly become more expensive this year, with the rate of rise passing 5%. In the coming months, once companies have exhausted their supplies in warehouses, consumer prices for food will also start to be affected by the rise in excise on alcohol and tobacco in February. Average inflation in the consumer basket in 2017 will reach 2.8%.

Source: Bank of Estonia
Author: Sulev Pert, Economist at Eesti Pank (Bank of Estonia)

Prices increased by 0.1 pct in 2016

Consumer price index increased by 0.1% in 2016. Higher excise taxes on alcohol, tobacco, and motor fuels contributed positively, while cheaper energy had the biggest negative impact on prices. The prices of alcoholic beverages and tobacco were around 6% higher than in 2015.

Heat energy were 9%, pipeline gas 20%, and motor fuels 4% cheaper than in 2015. Nevertheless, due to a gradual rise in oil prices since January 2016, and a hike in excise taxes in February 2016, the prices of motor fuels have started to rise. In December 2016, gasoline and diesel prices were already 16% higher than one year before.

In 2017, inflation in Estonia is expected to accelerate to around 3%, due to more expensive commodities, and new rounds of excise tax hikes on alcohol, tobacco, and fuels. In 2014-2016 average price level remained flat in Estonia, prices increased last time in 2013 (+2.8%).

Source: Swedbank

Standard and Poor’s affirms AA- rating on Estonia

The international ratings agency Standard and Poor’s has affirmed its AA- long-term foreign and local currency sovereign credit rating on the Republic of Estonia. The outlook of the rating is stable.

The short-term rating was affirmed at A-1+ with a stable outlook.

The S&P ratings are the highest granted to Estonia. Fitch and Moody’s rate Estonia at A+ and A1 respectively. A credit rating reflects the agency’s assessment on the government’s ability to honour debt obligations in the future.

S&P does not expect the recent change of government to undermine Estonia’s key credit strengths, including strong public finances and effective policymaking.

The agency expects prudent fiscal policy to remain in place following the change of government, and further expects the government to continue the focus on EU commitments, regional security, and energy supply diversification.

S&P understands that the new coalition will continue the ongoing government reform to consolidate local and regional governments by reducing the number of entities and increasing economic development focus and initiatives for the regions.

Economic growth in Estonia is expected by S&P to accelerate to 2.4 per cent in 2017 and to an average of 2.3% over 2016-2019. Growth in 2016 is estimated at 1.4 per cent.

For further information, see the press release by Standard and Poor’s (registration required).

Source: Estonian Ministry of Finance