Estonia: Growth slows in Q4 2019
GDP growth slowed to 3.9% in annual terms in the fourth quarter, according to a comprehensive estimate released by Estonia’s Statistical Institute on 28 February. This was down significantly from the third quarter’s revised 4.8% expansion (previously reported: +4.2% year-on-year) and marked the joint-weakest result since Q3 2016. In seasonally- and working-day adjusted quarter-on-quarter terms, growth edged down to 0.9% in the fourth quarter, from 1.2% in the third quarter.
The fourth-quarter deceleration was broad-based. Household consumption growth slumped to a near two-year low in the quarter (Q4: +1.7% yoy; Q3: +2.9% yoy) amid deteriorating consumer sentiment and despite tight labor market conditions and softening inflation. In a similar fashion, government spending growth more than halved at the end of 2019 (Q4: +1.6% yoy; Q3: +3.8% yoy), while fixed investment decelerated for the third quarter running (Q4: +5.9% yoy; Q3: +7.7% yoy), thus denting productivity growth.
In the external arena, dynamics were similarly downbeat. Exports contracted for the first time in four years following the previous quarter’s strong expansion (Q4: -0.6% yoy; Q3: +8.5% yoy), amid Brexit-related spillovers and faltering global and intra-EU trade. On the other hand, imports also dipped in the fourth quarter (Q4: -0.5% yoy; Q3: +5.9% yoy), reflecting a downturn in domestic demand. As a result, the external sector contributed 2.1 percentage points to overall GDP growth in Q4 2019.
Growth is set to lose steam this year, hurt by waning productivity gains due to much laxer investment activity growth and as feeble demand among key trading partners and the effects of the coronavirus outbreak weigh on the external sector. That said, private consumption should remain robust this year, amid still-tight labor market conditions and rising wages, thus cushioning the slowdown.