Analytics, Banks, Economics, Estonia, EU – Baltic States

EBRD highlighted that, following the investment-led strong gross domestic product (GDP) growth recovery of 4.9%in 2017, economic growth in Estonia slowed down to 3.5% y-o-y in the first half of 2018. This growth deceleration has been largely induced by poor corporate investment, which was only marginally offset by higher investment expenditures of the public sector and households.

"Labour shortages have been increasingly seen as a major constraint on business investment and exports, in particular in relatively less productive sectors," EBRD said.

Economic growth is expected to decelerate to 3.6% in 2018 and further to 3% in 2019.

Compared with the May forecast, the economic growth forecast for Latvia and Lithuania was raised by 0.4 percentage points to 3.9% and 0.2 percent to 3.4%, respectively. For both countries, the forecast for 2019 was left unchanged at 3.5% and 2.8%, respectively.

EBRD also noted that in Central Europe and the Baltic states as a whole, growth accelerated in the first half of 2018 to 4.7%  from last year's 4.4% due to consumption growth, which was led by salary increase. 

Next year, growth in the region is projected to normalize from visible overheating, slowing from 4.3% in 2018 to 3.5% in 2019. According to EBRD, the dynamism of household consumption is likely to offset the negative growth impact of shortages of skilled labor, slower growth of global trade and a softening EU business climate.