Consumption in Estonia

Estonia - Consumption

Growth slows in Q2

The economy grew 3.6% in annual terms in the second quarter, decelerating markedly from the first quarter’s 5.0% expansion, according to a comprehensive estimate released by Estonia’s Statistical Institute on 30 August. In seasonally- and working-day adjusted quarter-on-quarter terms, growth edged down to 0.4% in the second quarter, from 0.5% in the first quarter.

The second-quarter slowdown was chiefly driven by faltering household spending and a less favorable external backdrop. Private consumption slowed considerably in the quarter (Q2: +1.1% year-on-year; Q1: +5.4% yoy) amid a pick-up in inflationary pressures and a jump in the unemployment rate. Similarly, government spending decelerated sharply (Q2: +0.7% yoy; Q1: +5.9% yoy), weighing further on overall consumption growth. On a more positive note, fixed investment soared from an already robust showing in the previous quarter (Q2: +24.6% yoy; Q1: +17.8% yoy), chiefly on the back of booming private sector investment activity.

On the external front, export growth fell markedly (Q2: +2.2% yoy; Q1: +6.7% yoy), largely on sliding services exports amid faltering trade within the Eurozone. Imports, on the other hand, accelerated slightly in the second quarter (Q2: +5.0% yoy; Q1: +4.1% yoy), led by surging imports of motor vehicles, trailers and semi-trailers. As a result, the external sector’s contribution to GDP deteriorated in the second quarter, compared to the first quarter.

The Central Bank sees GDP expanding 3.0% in 2019 and 2.3% in 2020. Our panelists, meanwhile, are slightly more optimistic: They project the economy to grow 3.2% this year, which is up 0.1 percentage points from last month’s forecast, before moderating to 2.5% in 2020.