Estonia: Drop in demand

 

Real GDP will continue to decline in 2009, reflecting mostly a sharp drop in domestic demand, as gross fixed investment is expected to drop in real terms by over 6% and consumer spending by 1.6% compared with 2008. Growth is projected to gradually pick up by the end of 2009 and into 2010, driven by stronger exports. Currently high inflationary pressures are expected to weaken in 2009, but the past real exchange rate appreciation will make the desired export driven recovery challenging.

The currency board and the government’s commitment to the balanced budget rule limit macroeconomic policy options to support the recovery. More labour market flexibility, in particular more rapid wage adjustment and higher regional mobility, would be desirable in this context.

 




Economic data

GDP growth: +0.5% Q3 2018 year-on-year
Consumer price inflation: 2.1% Jan 2019 annual
Trade: +0.3% exp, +0.7% imp, Q2 2018
Unemployment: 5.3% Jan 2019
Last update: 12 Mar 2019

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