Estonia: GDP growth slows in the first quarter
May 31, 2018
The economy started 2018 on soft footing, with comprehensive data released by Statistics Estonia on 31 May putting annual GDP growth at 3.6% in the first quarter, down from the previous quarter’s 5.0% expansion and marking the weakest reading since Q4 2016. On a seasonally- and working day-adjusted quarter-on-quarter basis, the economy shrank 0.1% in the first quarter, the first contraction in two years.
Overall growth was primarily driven by robust domestic demand, which rose 4.4% year-on-year in Q1 (Q4 2017: 4.5% year-on-year) but was partly offset by weak external sector. Private consumption growth ticked up from the previous quarter’s 2.8% to 2.9%, supported by sustained tightness in the labor market. Meanwhile, government consumption moderated to a 0.9% increase in Q1 (Q4 2017: +1.5% yoy). Fixed investment contracted for the first time since Q4 2016 in the first quarter (Q1: -8.0% yoy), a stark deterioration from the previous quarter’s healthy 5.8% growth.
The slowdown in Q1 came largely on the back of a subdued external sector, a trend observed across all three Baltic economies at the beginning of the year. Growth in exports dipped from a strong 5.8% annual expansion in Q4 2017 to a meager 0.9% rise in Q1 on the back of evaporating momentum in export-oriented merchandise industries. In contrast, import growth remained sturdy in Q1 and was stable at the previous quarter’s year-and-a-half high of 5.4%, reflecting elevated demand for motor vehicles, and machinery and equipment.
The economy should grow at a healthy, albeit slower, pace this year. Economic activity will be buttressed by buoyant domestic demand on the back of increasing labor market activity and easing price pressures.
Author: Almanas Stanapedis, Research Team Manager