Estonia: GDP growth moderates in Q3 amid a less favorable base effect
November 30, 2021
GDP growth slowed markedly to 8.6% year-on-year in the third quarter, from 13.0% in the second quarter, albeit largely due to a less favorable base effect.
The slowdown was driven by weakening private consumption, fixed investment and exports. Private consumption growth waned to 8.5% year-on-year in Q3 from a 12.6% expansion in Q2, despite a withdrawal of pension funds. In addition, fixed investment contracted 8.8% in Q3, marking the worst result since Q2 2020 (Q2: +60.5% yoy). Government spending, meanwhile, picked up to a 4.2% increase in Q3 (Q2: +2.5% yoy).
Growth in exports of goods and services moderated to 17.5% in Q3 (Q2: +34.6% yoy). In addition, growth in imports of goods and services waned to 17.5% in Q3 (Q2: +56.7% yoy), marking the worst reading since Q3 2020.
On a seasonally-adjusted quarter-on-quarter basis, economic growth slowed markedly to 0.7% in Q3, down from the previous period's 2.3% increase. Q3's reading marked the softest growth since Q2 2020.
Looking at the fourth quarter, looser restrictions, the government’s move to aid consumers with higher electrical bills, and the effects of the withdrawal of pension funds should spur activity.
Meanwhile, commenting on the impact of the ongoing Rail Baltica project, analysts at Erste Bank said:
“In the medium term, the Rail Baltica project should boost investment growth across the region. The project itself is worth EUR 5.8bn, which splits into EUR 1.3bn in Estonia, EUR 2.0bn in Latvia and EUR 2.5bn in Lithuania (2017 estimate). […] Rail Baltica construction could increase the GDP of the Baltics by 0.2–0.6pp per year per country.”
Author: Frederico Teixeira de Abreu, Junior Economist