Estonia Merchandise Imports (EUR bn)

In Q4, annual GDP contracted for the third consecutive quarter and at a steeper pace than in Q3. Private consumption weakened due to double-digit inflation and deeply entrenched consumer pessimism, while exports fell at the fastest rate since Q2 2020 amid weaker global demand. However, surging growth in fixed investment prevented a deeper slump. In Q1 2023, the economy likely continued to wane. In January, industrial output contracted for the eighth successive month, dented by still-elevated producer inflation hitting all sectors. Private spending also likely deteriorated: Retail sales in January fell at their fastest pace since April 2020. Meanwhile, Prime Minister Kaja Kallas’ center-right coalition won an overwhelming majority in the 5 March elections, emphasizing the country’s pro-EU and anti-Russia stance.