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

International Internet Magazine. Baltic States news & analytics Sunday, 14.04.2024, 15:37

European Commission cuts Estonia's GDP forecast for 2012

Juhan Tere, BC, Tallinn, 23.02.2012.Print version
The European Commission stated in its fresh interim economic forecast that the 2012 outlook for the Estonian economy has significantly deteriorated, driven by falling confidence and weaker external demand around the turn of the year.

As a result, GDP growth expectations for 2012 have been revised downwards, from 3.2% in autumn to 1.2% in the present forecast, writes LETA.


According to the flash estimate from Statistics Estonia, annual economic growth in Estonia reached 7.5% in 2011, i.e. 0.5 pp. lower than projected in the autumn forecast. Domestic demand was stronger than expected and export performance remarkable. However, in the last months of the year Estonia was not immune to the deteriorating confidence seen in many Member States, the EC said. As a result, GDP shrank by 0.8% q-o-q in the last quarter of 2011. The contraction, however, was mostly limited to the export-oriented electronics sector, which had been one of the main growth drivers in the initial phase of the recovery. More recently, manufacturing production seems to have stabilised at somewhat below its recent peak level.


Despite remarkable productivity adjustments in the recent recession, exports are expected to remain weak in the first half of 2012. Export performance and growth will largely depend on the pace of the global recovery, the EC said.


Domestic demand was mainly driven by strong fixed investment, which rose by 23% in the first three quarters of 2011 compared to first three quarters of previous year, mostly due to corporate spending targeted at increasing productivity. However, public investment surprised positively in the second half of the year. Given the lower utilisation of production capacity in January 2012 compared to the previous October (68% compared to 74%) reflecting the economic deceleration, new corporate investment projects are likely to be put on hold for a while. Nevertheless, strong public investment is expected to largely offset the slowdown in corporate investment. The robust infrastructure investment already planned reflects carbon-credit-trade contracts aimed at increasing energy efficiency, but also higher absorption of EU structural funds.


Reflecting a relatively improved labour market situation and an increased disposable income, private consumption is expected to grow moderately this year.


Average annual HICP inflation reached 5.1% in 2011, spurred by higher international food and oil prices since spring 2010. However, the contribution of non-energy industrial goods to inflation remained low, alleviating the risk of competitiveness losses. The impact of the euro changeover on 1 January 2011 appeared limited.


Looking forward, lower commodity prices since mid-2011 should contribute to further inflation moderation in 2012. Given lower output growth and the slower decline in unemployment in 2012, second-round effects from earlier commodity price increases and upward pressure on wages due to skills mismatches should also be moderate.

Search site