Real GDP growth in Estonia accelerated to 3.7% yoy in the second quarter of 2018. The growth was stronger than in the first quarter (3.3%). In the first half, GDP growth was 3.5% in real terms. The acceleration of the growth was expected. However, nominal GDP growth in the second quarter was much stronger (8%).
As a part of annual regular revision, Statistics Estonia revised the national accounts data for 2014–2017 and the first quarter of 2018. According to the revised data, real GDP growth in the first quarter of this year was 0.3 percentage points lower – 3.3%. As a result of the revision, GDP for 2015 was revised up by 0.2 percentage points to 1.9% and the GDP for 2016 – by 1.4 percentage points to 2.1%.
Economic growth was broad-based
In the second quarter of 2018, the vast majority of activities contributed to the economic growth. As in the previous five quarters, main contributor to GDP growth was construction sector. This year the growth of construction sector was mainly supported by the construction of buildings. The highest contribution to GDP growth came also from manufacturing; professional and technical activities; transport and ICT sectors. The main activities that had a negative impact on the growth were agriculture, forestry and fishing; energy and administrative activities and support service activities.
The growth of manufacturing sector is supported by robust foreign demand
The growth of manufacturing sector has accelerated already for four quarters in a row. It has been supported by robust foreign demand – the growth of export of goods was 5% yoy. We expect that the growth of foreign demand eases somewhat this year, which could decelerate the growth of Estonian export volumes. Estonian manufacturing companies export growth expectations have also worsened.
Investments decreased by 0.8% in the second quarter
Investments have declined in the first and second quarter of the year. While investments of business sector have declined, government and households investments have increased. This was partly due to the base effect as in the first half of the last year higher investments were made in transportation sector. In the second half of this year the impact of the base effect is expected to fade and business sector investments should improve. At the same time, the share of investments in GDP is at the lowest level since the restoration of independence, which will also mean lower potential GDP growth.
Household consumption was strong in the first half of the year
Although retail trade volume growth has decelerated, the growth of household consumption in the second quarter was strong – 4% yoy. This is partly due to the decline in the share of goods in private consumption expenditures in last years. At the same time, price growth together with higher savings is limiting household consumption. In the next years we expect that the private consumption should grow by about 3%.
Economic growth in Estonia is expected to slow this year, but the economy in still well balanced and resilient
According to Swedbank latest forecast, economic growth in Estonia is expected to decelerate to 3.5% this year and 3.2% next year. Although, the growth will slow, economy will be well balanced and resilient.