Estonia’s GDP growth inches to 1.3% y/y in Q2.

By bne IntelliNews August 12, 2013

According to the first estimate by Statistics Estonia, the GDP increased by 1.3% y/y and seasonally and working-day adjusted 0.1% q/q in Q2. The growth picks up slightly after the GDP increased by 1.1% y/y and declined by 1% q/q in Q1. To compare, in Q4/12 GDP growth was at 3.7% y/y and in 2012 overall at 3.2% y/y.

The largest contribution to GDP growth in Q2 was from manufacturing due to increased value added of computers, electronics, and optical products. Both exports and domestic sales for manufacturing increased. Domestic trade also strongly supported growth in Q2. At the same time transportation and storage, agriculture, and utilizes had a negative effect on GDP growth.

The Bank of Estonia commented that although the growth in Q2 picked up, it was still slightly slower than forecasted in June. Low external demand and modest economic growth in main trading partners (Nordic countries and Russia) continues to inhibit growth. At the same time, same as the Bank of Latvia last week, the CB sees strong signs of recovering external demand. Should the external demand recover production capacity will have to be increased through investment.

The central bank reiterated its forecast of 2% GDP growth for 2013. The forecast was recently revised from previous 3%. Main reasons behind a worse outlook is a contraction of domestic demand and specifically fixed capital investment (seen slowing down to 2% growth). However, the decline in investment is driven by temporary factors and is expected to return to an equilibrium in 2014 and 2015.

GDP growth is seen accelerating to 4.2% and 4.3% in 2014 and 2015, respectively. Investment activity will be supported by low interest rates, unrestrained access to external financing, and improving economic climate, the CB suggests.

At the same time CB notes that ensuring that investment is directed towards productivity gains is important. Availability of cheap loans should not lead to underestimation of risks and excessively optimistic consumer behavior. It must be noted in this regard that in Q1/13 labor productivity per employee decreased in Q1/13 by 1% y/y, while unit labor costs increased by 7% y/y.

Related Articles

Latvia to probe tram tender awarded to Russian-controlled Railvec

Latvia’s state security service, the Constitution Protection Bureau (SAB), plans to scrutinise a tender to deliver trams to the country’s second-largest city won by a Russian company with ties to ... more

Finland’s Hesburger first Western burger chain to open in Iran since Islamic Revolution

Finland’s Hesburger has opened its first branch in Iran, becoming the first Western burger chain to set up in the country since the 1979 Islamic Revolution. It is located in the Tehranpars district ... more

Finland gives final nod to construction of Nord Stream II

Finland has issued a second and final permit for the construction of the controversial Nord Stream II pipeline that is to pump gas from Russia directly to Germany via a Baltic Sea route, the Regional ... more