Deceleration of economic growth in 1Q2018 was expected
GDP growth in Estonia
decelerated to 3.6% yoy in 1Q2018 in real terms. The slowdown was expected, as
close to 5% growth in 2017 was above the potential, by far. Nominal GDP growth
decelerated to 8%, but it’s still very robust.
Labour shortage has become increasingly limiting
factor to the economic activity
Tight labour market
and labour shortage has kept the growth of labour costs very fast. The growth
of labour costs exceed considerably the growth of labour productivity, which is
why the growth of unit labour costs has accelerated and this is gradually
deteriorating cost competitiveness of Estonia’s enterprises. According to the
estimations of industrial sector enterprises, their competitiveness on the
domestic market has worsened already for a long time and since the beginning of
2017, it has deteriorated on the EU market, as well.
Economic growth is still broad-based, but the
contribution of the service sector activities, having major business on the
domestic market, has declined
Broadly the same list
of economic activities as in 2017 - construction, transport, ITC and
manufacturing - contributed the most to the GDP growth in the first quarter. Although
economic growth was still broad-based, the contribution of the service sector
activities, having major business on the domestic market, has declined.
Increased level of income tax exemption, which was enacted since the beginning
of 2018, has not have any remarkable effect on private consumption. Private
consumption increased 2.8%, which was below our expectations. However, the
growth of private consumption is limited by the deepening decline in alcohol
beverages and tobacco products. According to the preliminary calculations, the
decline of the consumption of these products cut off approximately 0.4
percentage points from the GDP growth in 1Q2018.
Robust economic growth leads to higher import demand
of export growth (1% in real terms), whereas import growth remained moderate
(4%), was one of the major reasons for the deceleration of GDP growth. The
ratio of negative net exports to GDP was the largest of the last 9 years. Investments
declined 8%, but we expect that this is temporary. The decline in investments
came from the considerably weaker corporations’ sector investments, but the
public investments were still very robust. Stable and moderate import growth
reveals that domestic demand is robust, whereas capacity utilization has risen
above the long-term average.
We expect that economic growth in Estonia decelerates
According to Swedbank
forecast, Estonian GDP growth decelerates to 3.9% (4.9% in 2017). Composite
Economic Sentiment Indicators are still on the highest level of the last 4
years, but it has gradually come down. We expect that the growth of foreign
demand eases somewhat this year, but will still offer good export
opportunities. At the same time, risks of the possible worsening of foreign
demand (possible spread of protectionism in trade, increased uncertainly due to
the populist governments’ economic policy decisions, etc.) have increased.
Export growth expectations of the Estonian export enterprises have worsened
For more information please contact Mr.Tõnu Mertsina, +372 888 7589, firstname.lastname@example.org.