Flash comment: Estonia - August 11, 2015
Economic growth accelerated as expected
According to the flash estimates of Statistics Estonia, GDP accelerated to 1.9% YoY in the second quarter of 2015. The seasonally and working-day adjusted GDP increased by 0.8% QoQ. The acceleration of growth was expected. 

Although export of goods decreased (-2%), the decrease in import was even greater (-4%). This had a positive effect on net export and supported economic growth. The negative impact on exports was mainly caused by decreased sale of food, beverages and other machinery to Russia and Baltic countries. Export of chemical products to these markets has also decreased. Although the export volume of electronics increased it has decelerated noticeably due to stronger competition throughout the world. The negative impact on imports is caused by decreased use of intermediate inputs mainly by the electronics industry, but also the general decrease of production volumes in the manufacturing industry has an effect. 

The preliminary data suggest that the contribution of manufacturing industry to GDP growth has decreased. Although the contribution to GDP growth was positive, weak demand and decreased exports have had an impact. There has also been a decrease in energy production due to cheap import of electricity in the free market. Production and exports of wood products have maintained the growth already longer period of time and have contributed to the economic growth. It’s positive that several enterprises have shifted their exports to other markets as the demand on Russian market has dropped. 

Real estate related activities contributed the most to GDP growth. Another factor having a strongly positive effect on GDP growth was 14% increase in receipts of VAT. It is mainly supported by fast growth of real wages that have increased private consumption, but also by change in the rules of submitting the VAT declaration. 

The greatest factor preventing GDP growth was decreased value added in the transport sector. The transport sector has been in a decline for two and a half years mainly due to weaker demand in Russia. Russia has also started directing more goods through its own ports in the near region. 

The preliminary data suggest that private consumption has supported GDP growth the most, while investments were in a decline. 

Although the economy of EU is getting better, the economy of neighboring countries is weak. This is having a negative effect on export growth. While the demand in primary export markets has decreased significantly this year, the economic forecast is somewhat more optimistic about next year, which should deliver more export opportunities.

Estimated increase in foreign demand should set ground for increase of investments. Considering stronger competition and increasing shortage of labor force more investments are expected to be made for increasing the production efficiency.

For more information about this report, please contact Mr.Tõnu Mertsina, +372 888 7589, Tonu.Mertsina@swedbank.ee  


This letter is distributed by Swedbank in cooperation with Brightly. The letter is personal.