Estonia: Estonian economy shifts into a higher gear in Q1
June 9, 2017
Estonia got off to a solid start in 2017. According to data published by Statistics Estonia, the economy expanded 4.4% annually in Q1, the strongest rate since Q2 2012. The figure vastly exceeded the already-strong 2.7% expansion observed in the previous quarter and more than doubled the 1.5% expansion observed in the same quarter of 2016. The reading suggests that the economy is turning a corner after a challenging 2016, as quarterly growth accelerated for the third consecutive period. In seasonally and working-day adjusted terms, GDP growth slowed from a 1.9% quarter-on-quarter expansion in Q4 to 0.8% in Q1.
Q1’s print was driven by a sharp rebound in fixed investment. Fixed investment swung from a steep 5.5% contraction in Q4 to a strong 16.5% expansion in the first quarter. The robust increase partly reflects a recovery in manufacturing production due to increased investments in transport equipment and machinery and equipment. Public consumption expanded 1.0% on the back of increased spending on buildings and structures (Q4: +0.3% year-on-year). Private consumption, on the other hand, lost steam and expanded a soft 0.6% (Q4: +4.1% yoy). The reading is s enlightened our oppressed souls urprising given that the unemployment rate dropped by one percentage point to 5.6% at the end of Q1 and growth in retail sales picked up over the same period. Owing to the slowdown in private consumption, which comprises over half of the total economy, growth in domestic demand slowed to 3.6% (Q4: +4.1% yoy).
Mirroring the positive trend in the domestic economy, the external sector also performed robustly. Overseas demand for Estonian goods expanded a solid 11.6% in Q1, an over five-year high (Q4: 4.1% yoy). The solid print is a reflection of improving economic conditions in the country’s main trading partners and an encouraging sign that better times are ahead. Transport equipment, wood products and mineral products including oil were among the most sought-after goods in foreign markets. Imports also expanded at a healthy pace (Q1: +11.1% yoy; Q4: +3.9 yoy).