Estonia: Economy contracts at much milder pace in Q3 as it emerges from Covid-19 restrictions
November 30, 2020
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.
Author: Javier Colato, Economist