Estonia: Economy contracts in Q1
Sustained growth remains a distant dream: GDP fell 0.3% in Q1 2025 in annual terms following Q4 2024’s 1.2% expansion. The decline was the strongest since Q3 2024 and was notably below the flash estimate of a 1.2% rise.
On a seasonally adjusted quarter-on-quarter basis, economic activity shrank 0.3% in Q1, compared to the previous period’s 0.2% growth and marking the worst reading since Q4 2023.
Household consumption and net exports cap momentum: Domestically, private spending drove the annual contraction, declining 0.6% in Q1 compared to a 1.3% expansion in Q4. That said, elsewhere in the domestic economy, momentum improved. Government spending rebounded, growing 1.7% in Q1 (Q4 2024: -1.1% yoy); moreover, fixed investment fell at a softer pace of 0.1% in Q1 following the 10.3% decrease in the previous quarter, boosted by public outlays in the defense sector as part of the EU’s rearmament drive.
On the external side, exports of goods and services growth improved to 5.4% in Q1 (Q4 2024: +2.9% yoy). However, imports of goods and services growth sped up to 5.8% in Q1 (Q4 2024: +4.8% yoy). As a result, the contribution of net trade to GDP growth remained negative.