SEB Bank revised downwards its previous forecast of 3.8% GDP growth in Estonia for 2013 to 3.3%, according to its latest Nordic Outlook. Estonia’s economic growth forecast for 2014 remained unchanged at 3.7%. Faster than expected downturn in Estonia and Latvia is attributed to the global slump and lower manufacturing, at the same time household optimism remains more robust, consumption is seen as the main engine of the economy in 2013. Inflation is expected to remain stable at 3.3% in 2013 and 2014.

To remind, in Q1/13 GDP increased by 1% y/y and declined by 1% q/q (declining in q/q terms for the first time since Q3/09). To compare, in Q4/12 GDP growth was at 3.7% y/y and in 2012 overall at 3.2% y/y. Central bank of Estonia attributed the slowdown to slower investment, as seen in the non-tradable sectors such as construction. Weak external demand and situation with the main trading partners (Nordic countries and Russia) is anticipated to improve in H2/13. Central bank did not yet revise its 3% GDP growth forecast for 2013.

FinMin also commented that modest growth in Q1/13 was a result of domestic consumption and investment not compensating for a continuously weak external demand. GDP growth preliminary data fell short of expectations of banking analysts surveyed by BNS, who expected it to decline to a rate above 2% y/y.

In its latest spring outlook EC expects Estonia’s GDP growth to amount to 3% in 2013 and 4% in 2014, as compared to 3.2% y/y growth seen in 2012 and 8.3% in 2011. Sound fiscal policy and remarkable adaptability supported country’s resilience to the sovereign-debt crisis. While in 2012 amidst moderate exports growth economic growth was supported by robust domestic demand, in 2013 the growth is seen to be more balanced.