According to Statistics Estonia, in December 2007 retail sales for retail trade enterprises amounted to 5.4 billion kroons, which is 630 million kroons up on December 2006, in money but not real terms (inflation remember). Retail sales growth eased to an annual rate of 4 percent, the slowest since at least 2001, and industrial output declined 2.1 percent on an annual basis, the first contraction in more than five years, the Tallinin-based statistics office said today.
Retail sales slowed from a 6 percent growth rate in November, mostly as a result of consumers having less available to spend due to the ongoing increase in food prices, the statistics office said. Retail sales grew 14 percent on average in 2007, it added.
Consumer confidence fell in January to its lowest level in almost three years on worsening expectations for public and personal finances. The number of property transactions also fell in the fourth quarter to the lowest level in almost three years, as interest rates keep rising and banks have restricted lending terms.
Industrial Output
According to preliminary data from Statistics Estonia, industrial production in 2007 increased by 6% compared to 2006. Rapid growth in energy production and mining were the main factors producing growth in total industrial output. Growth in the manufacturing component first slowed and then turned negative towards the end of the year.
In December 2007, Estonia's seasonally adjusted industrial production fell 7.3 % compared with November. As compared with the month of December 2006, total industrial production fell 2%, and in manufacturing 5.7%.
This contraction in industrial output, adjusted for working days, followed a revised 4.5 percent expansion in November, the statistics office said. Manufacturing, which is the main contributor to gross domestic product growth at this point, shrank by 5.7 percent, the weakest showing since May 1999, led by a contraction in furniture, wood and construction materials' output. This is not good news for Q4 GDP, and when coupled with the steady downward movement in year on year retail sales begin to raise serious questions about what Q1 2008 GDP may actually look like.
Industrial output growth was hampered last year by rising costs as companies faced increasing labor shortages, unemployment was at a 16-year low and domestic demand started to cool after a three-year growth spurt.
Looking at the retail sales and industrial output charts, all I would say is that if this is marking the line of a "soft landing", then I would hate to see what a hard one looked like. Really, perhaps the most preoccupying part about all this looking through the comments you see in the press is just how little idea most of the professionally paid analysts have of what is actually going on here.
Domestic demand is going the same way as Hungary, and short of a major adjustment in relative prices (which means basically a big downward revision in currency values) exports will obviously not be able to drive growth. In other words if the currency value problem is not - for one reason or another - not addressed then you are going to see some of the most severe wage deflation in any developed country in recent times to put exports back onto a cometitive footing. Which means very weak domestic demand over a period of years while everything corrects, meaning very low GDP growth numbers, and these, remember are the key years before post 2012 the ageing population problem really starts to lock-in. It is the lack of urgency and shoulder shrugging you find almost everywhere that continues to preoccupy. Clearly most people are well out of their depth with all this, but does anyone really realise that the whole future of Estonia as a nation is now in play?
