Estonia: Economy contracts at steepest rate since Q4 2009 in Q2 amid Covid-19 fallout
August 31, 2020
GDP plunged 6.9% year-on-year in the second quarter, significantly greater than the 0.7% contraction logged in the first quarter and the steepest drop since the depths of the 2009 global financial crisis.
The downturn was broad-based, with both domestic and foreign demand collapsing due to the effects of Covid-19. Private consumption plummeted 8.7% on an annual basis (Q1: +1.6% yoy) amid lockdown measures introduced to contain the pandemic’s spread, marking the sharpest fall in over a decade. Similarly, fixed investment dived 15.3% year-on-year, after shrinking 7.1% in the prior quarter. Meanwhile, public spending rebounded as a result of increased government outlays to mitigate the impact of the virus, growing 3.7% year-on-year (Q1: -0.3% yoy).
On the external front, exports of goods and services contracted 19.0% in Q2, marking the worst result since Q3 2009 (Q1: +0.4% yoy). In addition, imports of goods and services dropped 21.5%, more severely than the 2.0% slip recorded in Q1 as Covid-19 weighed on domestic demand.
On a seasonally-adjusted quarter-on-quarter basis, economic activity fell 5.6% in Q2, following the previous period's 2.2% contraction. Q2's reading marked the largest contraction since Q4 2008.
GDP is seen contracting for the first time since 2009 this year as lockdowns to contain the coronavirus pummel domestic demand and the external sector. That said, Estonia’s outlook improved this month and a smaller downturn is now expected, partly thanks to relatively resilient household spending. Risks center on a sharp rise in Covid-19 cases and sluggish recoveries in Estonia’s trading partners.
Author: Javier Colato, Economist