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Estonia GDP Q1 2023

Estonia: GDP declines at a slower rate in Q1

GDP fell at a more moderate pace of 3.2% year on year in the first quarter, improving from the 4.1% contraction recorded in the fourth quarter of last year. The improvement came in spite of worsening contractions in private spending and investment.

On the domestic front, household spending fell 1.9% in the first quarter, which was below the fourth quarter’s 1.5% contraction. Moreover, fixed investment contracted 3.4% in Q1, marking the worst result since Q2 2022 (Q4 2022: +13.1% yoy). In contrast, public spending bounced back, growing 0.2% in Q1 (Q4 2022: -1.3% yoy).

On the external front, exports of goods and services slid at a softer rate of 6.9% in Q1 (Q4 2022: -7.3% yoy). Conversely, imports of goods and services deteriorated, contracting 7.3% in Q1 (Q4 2022: +3.6% yoy), marking the worst performance in over two years.

On a seasonally adjusted quarter-on-quarter basis, GDP dropped 0.6% in Q1, following the previous quarter’s 1.0% decrease. Q1’s reading marked the smallest contraction since Q4 2021.

Looking ahead, our panel anticipates the economy will decline again year on year in Q2, before rebounding in the second half of the year. Throughout the remainder of 2023, stubborn price pressures, tighter monetary conditions and weakening activity across Europe will stifle growth prospects. Energy prices, the global economic outlook and additional spillovers from the war in Ukraine are key factors to watch.

Analysts at Scope Ratings commented on the outlook:

“This year, Scope expects some recovery in economic activity, which will though be restrained by lasting effects of high inflation and the cost-of-living crisis. While robust wage growth will gradually reduce the erosion of purchasing power following the price shock last year, this will also contribute to erode external competitiveness, dampening exports amid timid external demand. In addition, tight financing conditions are likely to discourage investment, though this will in part be offset by the ramping up of EU funds inflows.”

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