Sa, 25.03.2023

Estonian economy contracted by 1.3 pct in 2022

Estonian economy contracted by 1.3 pct in 2022
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Estonia's gross domestic product (GDP) for 2022 was smaller by 1.3 percent than in 2021.
Estonia's gross domestic product (GDP) for 2022 was smaller by 1.3 percent than in 2021. Photo: Eero Vabamägi

Estonia's gross domestic product (GDP) for 2022 was smaller by 1.3 percent than in 2021, Statistics Estonia said on Wednesday, citing preliminary data.

The biggest positive contributor to GDP in 2022 was the accommodation and food service sector, which has recovered from the coronavirus crisis. Some other activities also contributed positively to GDP to a lesser degree. Major negative contributions to GDP in 2022 came from real estate activities, the energy sector, trade, agriculture, and financial activities.

Private consumption grew by 2.6 percent, while government consumption remained at the level of 2021. Investments fell by 10.9 percent in 2022 as a whole. The growth rate of exports, 5.0 percent, was quite similar to that of imports, 5.8 percent. Still, net exports were negative for the second year in a row -- Estonia's imports of goods and services were 200 million euros higher than exports.

In the fourth quarter of 2022, GDP declined by 4.1 percent compared with the same period of 2021. The GDP at current prices was 10 billion euros.

Robert Muursepp, leading analyst at Statistics Estonia, said that in the fourth quarter of 2022, GDP at current prices increased by 11.9 percent. At the end of the year, rapid inflation showed some signs of slowing, but the impact of inflation on economic growth was still similar to previous periods. After adjustment for inflation, there was a significant decrease in tax revenue as well as value added, the analyst said.

In the fourth quarter, recession was broad-based, with only a few economic activities experiencing growth. The biggest positive contributor was agriculture. The economy was also boosted a little by arts, entertainment and recreation, accommodation and food service activities, and public administration and defense. The main negative contributor was information and communication, but economic growth was also hampered by all other major sectors -- real estate activities, construction, manufacturing, trade -- which all contributed negatively. Professional, scientific and technical activities is usually one of the drivers of the economy but was among the negative contributors in the fourth quarter.

«On paper, enterprises report a strong growth, but this is the result of rapidly rising prices -- if we remove the effect of inflation, there has been a decrease in economic output,» Muursepp said.

Private consumption continued the downtrend, declining by 1.9 percent. Its value was the lowest since the first quarter of 2021. The biggest decrease occurred in households' expenditures on education, other goods and services, and furnishings. A considerable fall was also registered in expenditures on food and health. However, in some expenditure groups, there was a growth despite the soaring inflation. The most significant rise occurred in expenditures on restaurants and hotels and on recreation and culture.

«In general, it seems that households spent less on goods while the main increase occurred in their spending on leisure and related services,» said Muursepp.

At the end of 2022, there was also a decline in government consumption, which fell by 1.3 percent. Investments grew by 13.1 percent in the fourth quarter, which sets them apart from the overall trend. The biggest positive impact can be attributed to the investments of non-financial corporations in transport equipment, 164 percent, and in other buildings and structures, 20 percent, and to households' investments in dwellings, 29 percent. The biggest negative impact came from the investments of non-financial corporations in other machinery and equipment, -34 percent.

Muursepp said that foreign trade was similarly affected by the prevailing downward trends. Exports fell by 6.5 percent. The growth rate of imports slowed down and was 3.3 percent. In trade in goods, both exports and imports decreased. Exports and imports were primarily influenced by trade in electricity, crude petroleum and natural gas, chemical products, and computers and electronic equipment. In trade in services, there was a modest fall in exports, by 0.7 percent, while imports continued robust growth, 15.7 percent. In the latter, trade in computer services and various transport services had the biggest impact.

According to seasonally adjusted data, the GDP decreased by 1.6 percent compared with the third quarter of 2022 and by 4.4 percent compared with the final quarter of 2021.