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Estonia GDP Q1 2018

Estonia: GDP growth slows in the first quarter

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.

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