- Economic growth in Estonia reached 8.5% year-over-year in the third quarter of 2011, driven primarily by a strong manufacturing sector and private consumption growth. - While manufacturing contribution is declining due to high bases of comparison, other sectors such as construction and services are contributing more to overall growth. - Exports grew 24.2% in the third quarter but imports increased even faster, turning the trade balance negative for the first time in four years. - The economic growth rate is expected to slow in the fourth quarter due to high comparisons and the ongoing eurozone crisis, with private consumption and investments continuing to support the economy.

1. Flash comment: Estonia
Economic commentary by Economic Research Department Dec 9, 2011
Strong economic growth continued in 3Q
Economic growth According to data published by Statistics Estonia, economic growth
12% reached 8.5% yoy in 3Q, an upward revision from 7.9% flash
8%
estimate released a month before. Seasonally adjusted quarterly
growth was 1.2%.
4%
The main contributor was continuously manufacturing sector with
0%
2007 2008 2009 2010 2011
2.5pp to total growth (16.7% yoy). However, contribution from
-4% manufacturing has been declining, mostly due to very high
-8% comparison base, especially in the electrical equipment production
-12%
sector. The contribution is also decreasing because the overall
economic growth is becoming more broad-based – for example,
-16%
construction sector added 1.4pp, ICT 0.9pp and both agriculture
-20% and transport-storage 0.5pp to total growth.
quarterly grow th, s.a.
annual grow th Despite lessening contribution from manufacturing, export was still
strong in 3Q with 24.2% yoy growth. Even more, export’s share in
Contributions to GDP growth GDP reached a record-high of 96% (compared to EU average of
20% 44%). As import growth accelerated to 30.6%, net exports turned
negative after four years of positive contribution to overall growth.
10% High trade activity, in turn, helped to boost domestic demand –
private consumption was up 5.1% yoy and investments 34.1%.
0% Consumption growth was supported by durable purchases and
2007 2008 2009 2010 2011
different services. Investments growth was driven by machinery
-10%
and equipment as well as construction; the latter includes
mandatory investments by the public sector, related to Kyoto quota
-20%
sales.
-30%
households investments
Outlook
government net export
-40% GDP We expect economic growth in the last quarter of this year to slow
due to high comparison base as well as the pending euro crisis.
Confidence indicators, s.a. The latter impacts the economy through weaker export demand;
40 however, since manufacturing confidence has held up rather well
so far, a more pronounced slowdown can be delayed to next year.
20 In the fourth quarter, growth will be driven by private consumption,
supported by slower price growth as well as warm weather (which
0 brings down utilities costs). Strong investment growth should
2007 2008 2009 2010 2011 continue as well; however, since growing uncertainties are making
-20 companies more cautious over investment and job creation
decisions, this can dampen possible investment outcome.
-40
The average economic growth this year will be higher than our
services
current forecast of 7.6%. New forecast will be published in January.
-60
industry
construction Annika Paabut
-80 retail
Chief Economist
+ 372 6 135 440
annika.paabut@swedbank.ee
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