Estonia: GDP records sharpest contraction since Q4 2022 in Q3
GDP declined at a quicker pace of 3.9% year on year in the third quarter, below the 2.9% contraction seen in the second quarter. Q3’s reading marked the worst reading since Q4 2022. On a seasonally adjusted quarter-on-quarter basis, GDP declined 1.3% in Q3, following the previous quarter’s 0.6% fall. Q3’s quarter-on-quarter decline marked the largest decrease since Q4 2022.
Q3’s deterioration stemmed largely from an abysmal performance of the external sector, coupled with prolonged malaise in private spending and weaker public consumption. Household spending declined at a milder rate of 2.4% year on year in Q3 compared to a 3.0% contraction in Q2. Tight monetary conditions and elevated inflation likely ate into household budgets. Miscellaneous goods, clothing and footwear, and recreation and culture saw the largest drops in spending. Additionally, public spending dropped at the sharpest pace since Q2 2023, contracting 0.6% (Q2: +1.8% yoy). Meanwhile, fixed investment bounced back, growing 9.8% in Q3, contrasting the 18.7% decrease logged in the previous quarter.
Meanwhile, the external sector weighed heavily on the overall figure against a backdrop of muted EU demand: Exports of goods and services contracted 12.1% in Q3, marking the worst reading since Q2 2020 (Q2: -5.4% yoy). Conversely, imports of goods and services dropped at a slower rate of 6.0% in Q3 (Q2: -8.4% yoy).
Mihkel Nestor, analyst at SEB, commented on the outlook:
“Estonia’s export-dependent economy has been hard hit by low demand in the Nordic countries, but a broad-based decline in domestic demand is now also suppressing growth. […] The low tide in foreign trade is especially troublesome for Estonia’s manufacturing sector, which exports most of its output. […] A quick turnaround seems unlikely as new orders dwindle. Being the biggest economic sector in terms of value added and employment, its downturn is affecting many other parts of the economy. A notable recovery of exports will not happen before 2025.”