Investment in Estonia

Estonia - Investment

Economic growth quickens in the final quarter

GDP growth gained pace to reach 8.6% year on year in the fourth quarter of 2021, up from 8.3% in the third quarter.

Private consumption increased 6.5% in the fourth quarter, which was below the third quarter's 9.0% expansion. In detail, consumption of durable and semi-durable goods lost steam, driving down the print. As to product groups, consumption of food and non-alcoholic beverages—which accounted for around 20% of private spending—registered a slight slowdown. Contrastingly, consumption of services—which accounted for some 36% of private spending—grew, with hotels and restaurants registering the most significant expansions. Turning to government spending, it grew at the slowest pace since Q3 2009, expanding 2.4% (Q3: +4.2% yoy). Meanwhile, fixed investment contracted 38.4% in Q4, marking the worst reading since Q3 2009 (Q3: -8.4% yoy), largely due to an unfavorable base effect as the reading was robust in Q4 2020 at 70.3% annual growth. Notably, household investment in dwellings and firms’ investment in computers and software were the two components of investment which registered the largest falls.

On the external front, exports of goods and services increased 22.6% on an annual basis in the final quarter, which was above the third quarter's 18.2% expansion. Conversely, imports of goods and services deteriorated, contracting 2.6% in Q4 (Q3: +17.7% yoy). Consequently, the external sector drove the print’s acceleration.

On a seasonally-adjusted quarter-on-quarter basis, economic growth improved to 1.8% in Q4, compared to the previous quarter's 0.7% expansion. Additionally, the economy grew 8.4% in 2021 as a whole, comfortably exceeding pre-pandemic levels.

On the outlook, Malgorzata Krzywicka, analyst at Erste Bank, commented:

“Following the strong post-crisis recovery in 2021, growth dynamics will ease this year. The European Commission expects the Estonian economy to expand by 3.1% in 2022, Latvian GDP should increase by 4.4%, while Lithuania should grow by 3.4%. In light of the recent developments in Ukraine, the risks to the growth outlook are clearly tilted to the downside.”

FocusEconomics Consensus Forecast panelists project the economy to grow 4.0% in 2022, unchanged from last month’s forecast. In 2023, our panelists see GDP growth at 3.7%.