In 2015 Estonia's economic growth was the slowest of the past six years, remaining below the long-term potential of the country, the Bank of Estonia said in its economic overview on Wednesday.
Growth slowed mainly because of weaknesses in the economies of neighboring countries and this restricted opportunities for exports, though sales in the domestic market grew rapidly as household incomes and purchasing power increased. Income growth has been spurred by a rise in the minimum wage, wage agreements in education and health, and more generally by the decline in the working age population and in available labor resources, the central bank said.
Estonian exports of goods have dropped in the past two years and Estonian exports lost market share in target markets in 2015. The latest foreign trade data indicate that exports continued to fall at the start of this year. As the fall in exports has been accompanied by a reduction in company profits and a rise in wage costs, the issue of competitiveness in the economy has been to the fore. Possible problems in competitiveness and the risk that the economy is out of balance were also highlighted last year by the European Commission.
Estonia's faster economic growth depends a lot on the performance of target markets. In the first months of this year the economic figures in the euro area have proven weaker than expected and the March forecast of the European Central Bank concluded that growth in 2016 will be lower than was forecast earlier. The spluttering recovery in growth in the euro area means that the stimulus to growth in the Estonian economy provided by external demand will be modest.
Energy prices have been falling for several years by now, and this has significantly reduced inflation. Consumer prices have been falling in Estonia for about two years now, and in February inflation in the euro area turned negative again. For this reason the governing council of the European Central Bank decided at its meeting in March to ease monetary policy even further, which means that financing conditions will continue to be very favorable in Estonia and in the euro area.
According to Statistics Estonia, Estonia's gross domestic product grew 1.1 percent on year in 2015.