Estonia Wages (ann. var. %)

Following Q3’s deterioration, year-on-year GDP likely contracted further in Q4. In October–December, the slump in annual industrial output deepened amid persistently high producer prices. Retail sales also plummeted to the lowest annual rate since Q1 2010 as consumer spending likely weakened. Worsening business pessimism and a softer expansion in merchandise exports should have undermined investment and exports growth, respectively. In Q1, activity remains downbeat. In January, higher inflation and interest rates will have dented domestic activity. That said, improving business and consumer sentiment pose upside risks to spending and investment. Ahead of the 5 March general elections, the incumbent liberal Reform Party is expected to grab the lion’s share of the votes. However, the rise of the right-wing opposition party EKRE will likely chip away at its majority.