Flash comment: Estonia

Economic commentary by Economic Research Department Nov. 12, 2012

Economic growth accelerates in 3Q

Economic growth
12% 8% 4% 0% -4% -8% -12% -16% -20% quarterly grow th, s.a. (rs) annual grow th 2008 2009 2010 2011 2012 6% 4% 2% 0% -2% -4% -6% -8% -10%

According to the flash estimate published by Statistics Estonia, the economic growth accelerated to 3.4% in the third quarter from 2.2% in the second quarter. The seasonally adjusted quarterly growth was measured at 1.7% which is the highest rate since the beginning of 2011 and most likely also the highest growth in the euro area. The growth, which overshot our expectations, was similarly to previous quarters supported the most by domestic demand construction and ICT sectors had the strongest effect, followed by retail trade and transport sectors. Investment growth has been strong in the first half of this year and that most likely continued in the third quarter as well. The export-dependent manufacturing sector, however, has been contributing negatively to the growth this whole year. Nevertheless, the external balance has not worsened considerably while higher investment activity has increased imports and turned the current account to a small deficit, household deposits have remained (despite very low interest rates) close to their all-time highest levels. This on one hand has had a suppressive effect on the private consumption, but on the other hand has helped commercial banks to cut the reliance on market based financing.

Manufacturing, retail and construction volumes, annual growth

40% 30% 20% 10% 0% -10% -20% -30% -40% 2008 2009 2010 2011 2012

Outlook
The economic growth will continue to be based on domestic demand, especially investments, in the coming quarters as well. This is evident by high capacity utilisation levels in the manufacturing as well as stabilised loan stock of enterprises in the third quarter for the first time since the crisis the amount of new loans issued to enterprises was higher than their repayments. External demand conditions, however, will remain weak; hence, the acceleration in economic growth might be rather short-lived. As the third quarter growth was much higher than expected, the overall growth for this year will most likely be higher than our current forecast of 2.6% and close to our summer forecast of 3%.

manufacturing retail construction

Confidence indicators
40

20

0 2010 -20

2011

2012

-40

-60

consumer industry retail construction services

Kristjan Tamla Acting Chief Economist +372 888 7952 kristjan.tamla@swedbank.ee

Swedbank Economic Research Department SE-105 34 Stockholm, Sweden ek.sekr@swedbank.com www.swedbank.com Legally responsible publisher Cecilia Hermansson, +46 8 5859 7720

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