Flash comment: Estonia

Economic commentary by Economic Research Department Feb.11, 2013

Economic growth accelerated in the last quarter of 2012

GDP and export of goods growth
15% 10% 5% 0% -5% -10% -15% -20% GDP quarterly grow th export of goods annual real grow th (rs) GDP annual grow th 2007 2008 2009 2010 2011 2012 50% 40% 30% 20% 10% 0% -10% -20% -30%

According to the flash estimates published by Statistics Estonia today, the GDP growth in Estonia accelerated from 3.5% in the 3rd quarter to 3.7% in the 4th quarter. The annual GDP growth in 2012 was 3.2% and the seasonally and working-day adjusted GDP increased by 0.9% compared to the 3rd quarter. The growth rate overshot our expectations. Economic growth was mainly based on domestic demand contributed mostly by the growth of retail trade, transport and ITC activities. At the same time, growth of value added of construction continued to decelerate. Whereas alcohol and tobacco excise taxes were raised in the beginning of this year (2013) and the resp. goods were accumulated at the end of the last year, increased receipts of excise taxes contributed to the GDP growth as well. Industrial production increased, but its contribution to GDP growth was marginal. The growth was not broad-based and resulted from only a few economic activities. Manufacturing growth was continuously supported mostly by the production of computer, electronic and optical products, which output was mainly exported. As more than 70% of the manufacturing output is exported, the real growth of export of goods by 10% may be considered as a good result. Insufficient demand and decrease in new orders are the main reasons which inhibit manufacturing production. Domestic orders of manufacturing output are decreasing and the growth of orders to abroad have started to decelerate as well.

Manufacturing and retail annual growth

40% 30% 20% 10% 0% 2009 -10% -20% -30% -40% Manufacturing Retail

2010

2011

2012

Outlook
40 20 0 -20 -40 -60

Confidence indicators, pts

120 100 80 60 40 20 0 2008

As economic growth is supported mostly by domestic demand, we presume that the growth of import of investment products and goods of final consumption will exceed export maintaining negative trade balance. However, surplus of services will compensate it. Increase in domestic demand should moderate together with the deceleration of the growth of investments. As export of goods will not be broad-based in the coming months, the GDP growth should still decelerate in the beginning of current year.
Tnu Mertsina Chief Economist +372 888 7589 tonu.mertsina@swedbank.ee

2009 ESI (ls) Construction

2010

2011 Industry Services

2012

-80 2013 Retail

Swedbank Economic Research Department SE-105 34 Stockholm, Sweden ek.sekr@swedbank.com www.swedbank.com Legally responsible publisher Magnus Alvesson +46 8 5859 3341

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