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Thursday, March 13, 2008

Estonia GDP Q4 2007 Revised Data

Statistics Estonia have now published the revised and detail figures for Q4 2007. The 2 most important details are that we now have a revised year-on-year growth number - which is up to 4.8% from the previous 4.5%, and we have a seasonally adjusted estimate for quarter on quarter growth, which is 0.8%. This of course is very low, since it is important to remember that the trend is down and falling. In fact my earlier estimate of 0.6% qoq (made in this post) doesn't look too bad, especially since it was based on an original estimate of 4.5% for year on year growth. Thus most of what I say in the original post remains valid.

What is quite evident from the above chart is that the growth momentum in Estonia has been declining since the first quarter of 2006. What is also evident is that the loss of momentum is moving in fits and starts. Q3 2007, for example, shows a certain recovery from Q2, but then the decline continues in Q4. What can we learn from this pattern? Well, we now know that Latvia entered recession in Q4 2007. If we look at the rate of decline in Estonia we could expect recession to arrive in Q1 2008, but this might not happen, and we might not reach the recession stage till Q2 2008. The recent uplift in Germany, and the further acceleration in some EU10 economies (Slovakia and Poland in the front) leads me to think that in fact Q1 2008 may not be as negatively monotonic as Q4 2007 was.

In terms of details, domestic demand grew by 5.5% year on year in the 4th quarter. Within the components of domestic demand, the growth rate of household final consumption expenditure decelerated to 3.3% compared to the 4th quarter of 2006 mainly due to the deceleration in the growth of expenditures on food and non-alcoholic beverages and due to the decrease in the expenditures on clothing and footwear. Capital investments grew by 5.6%. Investments by non-financial corporations supported the total investments of the economy the most, whereas the investments made by financial, general government and households’ sectors decreased.

Exports and imports of goods and services decreased at constant prices in the 4th quarter. Exports decreased by 0.2% compared to the same quarter of 2006, but imports decreased by 0.7%. Specifically, the exports and imports of goods decreased, whereas the exports and imports of services increased. Decrease in the exports of goods was mainly influenced by the decrease in the exports of mineral products and machinery and equipment. Decrease in the imports of machinery and equipment and metals and products thereof influenced the most the decrease in the imports of goods. Deficit of net exports in GDP increased to the level of 8.9%.

On the supply side of the economy, deceleration continued in the value added growth of manufacturing and real estate, renting and business activities, which fell to year on year rates of 4.9% and 0.6% respectively, in addition, decrease in the value added of wholesale and retail trade and transport, storage and communication activities, compared to the 4th quarter of 2006, influenced deceleration in the growth of GDP.

Growth in 2007

According to preliminary calculations of Statistics Estonia, the gross domestic product (GDP) increased by 7.1% at constant prices in 2007 compared to the previous year. In the 4th quarter of 2007, GDP grew by 4.8% compared to the same period of previous year.

GDP at current prices was 243.3 billion kroons and at constant 2000 prices it was 169.1 billion kroons. In 2007, the GDP growth decelerated gradually due to the deceleration of domestic demand and exports and imports of goods and services. The growth rate of domestic demand decelerated to 9.3% compared to 2006 (in 2006, domestic demand grew by 16.1%). A steep deceleration of household final consumption expenditure and capital investments in the second half of the year influenced the deceleration in the growth rate of domestic demand. Growth of exports and imports decelerated as well, whereas in the second half of the year both indicators even decreased. Thus, in 2007 compared to the previous year, exports increased only 1.5% and imports increased 2.8%. At the same time, deficit of net exports in GDP somewhat improved.

Deceleration in the growth of domestic demand and exports brought about deceleration in the growth of corporations’ sector to 5.8% (in 2006, the sector grew by 12.4%).

Value added growth of the majority of economic activities decelerated in 2007 compared to 2006. A more significant deceleration was in hotels and restaurants, wholesale and retail trade and real estate, renting and business activities. The annual growth of value added decelerated fast in the electricity, gas and water supply activity. However, the growth rate of this economic activity accelerated in the second half-year. Value added grew faster than in 2006 only in the fishing, mining, and public administration and defence activities.

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