Swedbank: Estonia: GPD fell for the fifth quarter in a row

01.06.2023
  • SwedbankIn Q1 2023, GDP contracted 3.2% y/y (non-adjusted) and 0.6% q/q (swda) in real terms. GDP contraction met our expectations. In nominal terms, Estonian economy expanded 9.3%, above the long-term average.
  • Estonian economy has contracted five quarters in a row in q/q and four quarters in y/y comparison. However, labour market is strong and wage growth is robust.
  • We forecast that GDP will continue to fall in Q2 y/y. Although, the economy is expected to show modest expansion in 2H, it will decline 0.8% in 2023.
    Weaker foreign demand has reduced export of goods from Estonia. According to our estimate, cost competitiveness of Estonian exporters has deteriorated. This can slow down the recovery of exports when the demand will improve.
  • Although we expect that real wage will return to growth soon, the recovery of consumption growth will have a delay time.
  • Estonian new government is preparing tax hikes as of next year to reduce budget deficit. This will prevent inflation from slowing down as we previously estimated. This in turn, will cut some growth from the private consumption, as well as from the GDP in 2024.
  • Minimum wage has been agreed to raise gradually from the current 39.5% of average wage to 50% in 2027. This intensive increase can be challenging for the business sector.

Full report

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