Estonia: Economy contracts at much milder pace in Q3 as it emerges from Covid-19 restrictions
GDP dipped 1.9% year-on-year in the third quarter, softening from the 6.9% contraction logged in the second quarter, which had marked the sharpest downturn since the 2009 global financial crisis.
The softer decline reflected gradually recovering activity amid the loosening of pandemic-related restrictions. Private consumption slipped 0.7% on an annual basis, moderating significantly from the 8.8% decline seen in the second quarter. Meanwhile, capital spending soared 12.9% year-on-year, rebounding strongly from the 15.3% collapse logged in Q2. Moreover, public expenditure picked up, rising at the strongest pace in one and a half years (Q3: +5.4% yoy; Q2: +3.7% yoy).
On the external front, exports of goods and services contracted 8.6% in Q3, moderating from the 18.7% collapse in Q2 thanks to a rebound in merchandise sales. In addition, imports dropped a much softer 2.0% from the same quarter last year amid reviving domestic demand, after plunging 19.9% in Q2.
On a seasonally-adjusted quarter-on-quarter basis, economic activity jumped 3.3% in Q3, bouncing back to growth after two consecutive quarters of decline (Q2: -5.5% s.a. qoq).
The economy is expected to recover strongly in 2021 after this year’s blow dealt by the pandemic. Recovering confidence should help buoy business investment, a gradually improving labor market is seen supporting consumer spending, and exports should benefit from reviving foreign demand. The renewed proliferation of the virus across the EU clouds the outlook, however.