Consumption in Estonia

Estonia - Consumption

Growth hits over one-year high in Q1

Economic growth clocked in at 4.5% in year-on-year terms in Q1 2019, picking up slightly from the 4.3% acceleration recorded in Q4 2018, according to a detailed GDP release by Estonia’s Statistical Institute. The result marked the fourth consecutive quarterly acceleration and the fastest since Q4 2017. In seasonally- and working day-adjusted quarter-on-quarter terms, the economy expanded 0.5% in the first quarter, which was markedly lower than Q4 2018’s 2.1% increase.

Domestic demand continued to support growth at the beginning of the year, despite losing traction from the previous quarter (Q1 2019: +4.0% year-on-year; Q4 2018: +6.2% yoy). Fixed investment once again spearheaded the overall expansion, surging 17.1% year-on-year in Q1 (Q4: +17.7% yoy), amid booming investments by non-financial enterprises into transportation equipment, and machinery and other equipment. On a less positive note, household spending growth fell to a near two-year low in the first quarter (Q1 2019: +2.8% yoy; Q4 2018: +5.5 yoy), against the backdrop of an uptick in unemployment. However, a jump in public spending, with government consumption growth hitting an over one-decade high (Q1: +5.4% yoy; Q4: +2.2% yoy), somewhat shielded the slowdown in total consumption.

Meanwhile, despite weaker exports growth, the external sector strengthened on a slump in imports growth. Exports growth moderated to 4.6% in the first quarter on an annual basis (Q4 2018: +5.9% yoy), as a rare contraction in services exports dragged on robust merchandise exports growth. At the same time, imports growth slowed markedly (Q1: +3.8% yoy; Q4: +6.5%), likely due to softer consumer demand. As a result, the external sector’s contribution to GDP was greater in Q1 2019 than in Q4 2018.

The Central Bank sees GDP expanding 3.0% in 2019 and 2.3% in 2020. Our panelists project the economy to grow 3.2% this year, which is up 0.1 percentage points from last month’s forecast. In 2020, our panelists see GDP growth moderating to 2.5%.