In Q2, Estonian GDP declined 2.9% y/y (non-adjusted) and 0.2% q/q (swda). GDP has contracted 3.3% in real terms in 1H 2023.
The GDP decline has receded gradually, while the largest contraction remained in 4Q 2022. We forecast 2% GDP decline in real terms in 2023, while it will recover to 2% growth next year.
In nominal terms, GDP growth slowed to 5.1% in Q2. We expect that nominal year-on-year growth will continue in the next two years, but it will remain below long-term average.
In Q2, as well as in the last four quarters, the largest negative contribution to the GDP decline has come from transportation, energy production, construction, forestry and financial services.
Private consumption, investments’ and export of goods’ decline has intensified, while export of services has increased.
Despite the prolonged recession, labour market has remained strong, and we expect that unemployment rate will pick up only moderately.
Recovering real wages will increase private consumption with a certain time delay, while weak foreign demand will limit the recovery of export sector.