Estonia: GDP growth expands at softest pace since Q3 2020 in Q2
GDP growth moderated to 0.6% year on year in the second quarter, from 4.5% in the first quarter. Q2’s reading marked the softest expansion since Q3 2020, although it was partly due to an unfavorable base of comparison, as the economy expanded nearly 14% in Q2 2021. The result was also capped by the highest inflation in the Eurozone over the quarter. Information and communications technology supported growth, which was partly offset by a strong negative contribution of manufacturing to the reading.
Private consumption growth waned to 4.6% year on year in Q2 from an 8.5% expansion in Q1. The slowdown came amid decades-high consumer prices. More positively, government spending bounced back, growing 0.4% in Q2 (Q1: -0.5% yoy). Meanwhile, fixed investment contracted at a milder pace of 23.3% in Q2, from the 31.2% contraction logged in the previous quarter.
On the external front, exports of goods and services growth fell to 5.3% in Q2, marking the weakest reading since Q4 2020 (Q1: +14.4% yoy). Meanwhile, imports of goods and services deteriorated, contracting 0.2% in Q2 (Q1: +7.0% yoy).
On a seasonally-adjusted quarter-on-quarter basis, GDP declined 1.3% in Q2, from the previous period’s flat reading, pointing to a darkening outlook. Q2’s reading marked the largest decrease since Q2 2020.
On the outlook for the Estonian economy, analysts at the EIU commented:
“We will revise down our growth forecast for 2022 to below 1% (from 1.1% at present), and now expect a slight contraction in 2023. This reflects Estonia’s exposure to falling external demand as gas shortages, high inflation and declining confidence push the rest of the euro zone into recession over the winter. However, Estonia’s energy security will be boosted by the opening of a floating liquefied natural gas (LNG) terminal at Paldiski at end-November 2022, and a connecting terminal in Finland the following month.””