Estonia: Economy shrinks at softer rate in Q4 2020
March 1, 2021
GDP fell 1.2% year-on-year in the fourth quarter of 2020, amid rising Covid-19 cases and associated containment measures. Nevertheless, the decline was softer than the 2.5% contraction recorded in the third quarter. For the year as a whole, the economy shrank 2.9% (2019: +3.3%), marking the first downturn since the 2009 global financial crisis.
Q4’s milder drop was primarily driven by soaring capital spending. Fixed investment skyrocketed 71.4% in annual terms in the quarter, marking the strongest rise on record (Q3: +15.8% yoy). Private consumption, meanwhile, declined for the third consecutive quarter and at the same 1.0% annual pace as in Q3, as restrictions curtailed spending. Lastly, government expenditure slowed, although still grew a robust 4.8% (Q3: +5.5% yoy).
On the external front, exports of goods and services rose 2.5% annually in Q4, rebounding solidly from Q3’s 5.9% drop. For their part, imports surged 25.9% year-on-year, likely driven in part by the jump in investment activity, contrasting Q3’s 5.9% decline.
On a seasonally-adjusted quarter-on-quarter basis, economic activity climbed 2.1% in Q4, moderating from the 2.5% increase logged in the previous quarter.
GDP is seen rebounding solidly this year, after last year’s Covid-19-induced recession. Strengthening foreign demand should buoy the external sector, while households and businesses are set to resume spending as the economy reopens and sentiment recovers. That said, still-high infection rates and the slow rollout of vaccines pose key risks to the outlook.
Author: Javier Colato, Economist