Estonia: Growth picks up in Q3
The economy grew 4.2% in annual terms in the third quarter, accelerating from the second quarter’s 3.9% expansion (previously reported: +3.6% year-on-year), according to a comprehensive estimate released by Estonia’s Statistical Institute on 29 November. In seasonally- and working-day adjusted quarter-on-quarter terms, growth picked up to 1.0% in the third quarter, from 0.4% in the second quarter.
The second-quarter acceleration was driven by an upturn in the external sector. Export growth firmed up (Q3: +7.0% yoy; Q2: +3.3% yoy), largely on soaring exports of goods. Imports, on the other hand, decelerated slightly in the third quarter (Q3: +5.4% yoy; Q2: +4.4% yoy), reflecting slowing domestic demand. As a result, the external sector’s contribution to GDP improved in the third quarter, compared to the second quarter.
Meanwhile, domestic demand softened in the third quarter. Private consumption growth halved in the third quarter (Q3: +1.2% yoy; Q2: +2.4% yoy), accelerating at the weakest pace since Q1 2018. In a similar fashion, fixed investment growth slumped to a one-year low (Q3: +8.1% yoy; Q2: +24.6% yoy), amid contracting public investment activity and slowing inflow of EU development funds. On a more positive note, government consumption jumped in the third quarter (Q3: +3.8% yoy; Q2: +0.9% yoy), restraining overall domestic demand.
Next year, growth is expected to fall sharply, due to waning productivity gains amid faltering investment activity and as weaker public spending growth weighs on total consumption. That said, private consumption should remain sturdy, thanks to tight labor market conditions. Externally, soft demand from the EU will likely hurt exports.