GDP records best reading since Q1 2022 in Q4

Economy ends 2024 on a high note: The economy bounced back at the end of 2024, expanding 1.1% year on year in the fourth quarter on a seasonally and calendar-adjusted basis (Q3: -0.2% yoy). The reading came in sharply above the preliminary estimate of a 0.1% contraction and marked the best result since Q1 2022—the start of Russia’s full-scale invasion of Ukraine, which wreaked havoc on the Estonian economy. On a seasonally adjusted quarter-on-quarter basis, economic activity rose 0.7% in Q4, compared to the previous period's 0.2% rise. However, Q4’s improvement was not strong enough to offset the weak performance of the economy earlier in the year: GDP contracted 0.2% in 2024 as a whole (2023: -3.1%).

Domestic economy gains speed: Domestic demand chiefly drove Q4’s annual rebound in GDP, recovering from the prior quarter’s slump. Household spending bounced back, growing 1.2% year on year in the fourth quarter (Q3: -1.8% yoy). Moreover, fixed investment slid at a milder pace of 10.3% in Q4, following the 15.0% decrease recorded in the prior quarter. That said, government consumption swung into decline, contracting 1.1% (Q3: +1.2% yoy). On the external front, exports of goods and services growth hit an over two-year high of 3.2% in the final quarter, up from the third quarter's 0.9%. Nonetheless, imports of goods and services growth picked up to 3.5% in Q4 (Q3: +0.5% yoy).

Economy to turn a corner in 2025: In 2025, the economy should grow for the first time in four years, recovering from the fallout of Russia’s invasion of Ukraine in early 2022. Lower interest rates and rising EU demand should fuel rebounds in private spending, fixed investment and exports. Nevertheless, fiscal consolidation will cap the expansion. Higher-than-expected U.S. tariffs and weaker EU momentum are downside risks, while a potential ceasefire in Ukraine is an upside risk.

Panelist insight: EIU analysts said: “Private consumption growth will rebound in 2025 as inflation moves closer to the ECB's 2% target, underpinning solid real wage growth (of 2%) and easing the pressure on real household disposable incomes. However, a stronger rise in consumer spending will be prevented by interest rates and inflation still remaining high by historical averages, even as the ECB cuts its policy rates. Government consumption will make a positive contribution to growth. However this impact will be limited by the government prioritising military spending rather than stimulative spending elsewhere. A relatively sluggish euro area recovery in 2025 will keep manufacturing and export orders subdued.”

How should you choose a forecaster if some are too optimistic while others are too pessimistic? FocusEconomics collects Estonian government consumption projections for the next ten years from a panel of 7 analysts at the leading national, regional and global forecast institutions. These projections are then validated by our in-house team of economists and data analysts and averaged to provide one Consensus Forecast you can rely on for each indicator. By averaging all forecasts, upside and downside forecasting errors tend to cancel each other out, leading to the most reliable government consumption forecast available for Estonian government consumption.

Download one of our sample reports to visualize what a Consensus Forecast is and see our Estonian government consumption projections.

Want to get access to the full dataset of Estonian government consumption forecasts? Send an email to info@focus-economics.com.