Estonia: Growth accelerates in the second quarter
August 31, 2018
The Estonian economy accelerated in the second quarter, with GDP growing 3.7% on annual basis, according to comprehensive data released by Statistics Estonia on 31 August. The figure came in slightly above the 3.3% increase recorded in the first quarter and was driven by robust private consumption growth. On a seasonally- and working day-adjusted quarter-on-quarter basis, the economy expanded 1.4% in the second quarter, swinging back from a moderate 0.1% contraction in the previous quarter.
In the domestic arena, private consumption remained firmly in the driver’s seat in Q2 as household spending accelerated to 4.1% year-on-year in the quarter (Q1: +3.9% year-on-year), supported by near decade-low unemployment and rising wages. On the other hand, government spending growth dipped in the second quarter (Q2: -0.5 yoy; Q1: +0.0% yoy), marking the lowest result in over six years. Lastly, although it markedly improved from the previous quarter (Q1: -9.2 yoy), fixed investment contracted 0.8% yoy in Q2 and thus continued to drag on domestic demand.
The external side of the economy fared significantly better in the second quarter than in the previous one. Growth in exports accelerated from a mere 0.2% yoy increase in Q1 to an over one-year high of 5.9% in Q2 on the strength of both services and goods exports. Meanwhile, imports also gathered steam in Q2, albeit less notably (Q1: +5.7% yoy; Q2 +7.0% yoy), amid buoyant domestic demand.
The economy should maintain a healthy pace of expansion this year, even though it is likely to decelerate. Solid domestic demand is set to support economic activity, which should be bolstered by elevated capital inflows from EU cohesion funds in the second half of the year. In addition, a more competitive labor market and the projected easing of inflationary pressures should bolster private consumption this year and next.
Author: Almanas Stanapedis, Economist