Estonia: GDP contracts for the first time in a decade
May 29, 2020
GDP shrank 0.7% in year-on-year terms in Q1 2020 (Q4 2019: +3.9 yoy), marking the first contraction since Q1 2010 as Covid-19 took its toll. Moreover, the economy contracted 3.7% quarter-on-quarter in seasonally-adjusted terms (Q4 2019: +0.9% qoq), the worst result since Q1 2009.
The first-quarter downturn was broad-based and predominantly driven by an increasing economic spillover from the pandemic. Domestic demand slipped in Q1 amid lockdown and social-distancing measures implemented in March, with fixed investment contracting for the first time in nearly two years (Q1 2020: -6.9% yoy, Q4 2019: +6.7% yoy) and private consumption growth plunging to nearly a decade low (Q1 2020: +0.5% yoy, Q4 2019: +2.2% yoy). In a similar fashion, government consumption dipped slightly in the same period (Q1 2020: -0.3% yoy, Q4 2019: 1.4% yoy), further weighing on the overall result.
On the external front, imports of goods and services plunged at the sharpest rate in over 10 years in the first quarter (Q1 2020: -5.2% yoy, Q4 2019: +0.3% yoy, reflecting dissipating domestic demand. In a similar fashion, eviscerated external demand due to widespread lockdown measures hammered exports of goods and services, which fell at the sharpest pace since Q4 2015 (Q1 2020: -2.6% yoy, Q4 2019: +0.5% yoy).
The economy is set to shrink considerably this year, pounded by the pandemic. Although economic activity is seen gradually recovering in H2 after an expected severe contraction in H1, both domestic demand and the external sector are expected to contract amid depressed business confidence, eviscerated external demand, curtailed tourism inflows and shattered consumer spending due to soaring unemployment and downbeat sentiment. A notable jump in public spending should cushion the overall downturn somewhat, however.