- The Estonian Statistical Office has this morning published its flash estimate for Q2 09 GDP data. GDP decreased by 16.6% y/y, down from -15.1% y/y in Q1 09. The number was significantly better than we and consensus had expected.
- It looks as if the economic decline has reached the bottom. We expect to see a slightly positive development in the second half of the year. However, the base effect will play a key role. We expect GDP this year to shrink by 13-15% for the whole year.
Details
Statistics Estonia has today released its flash estimate on GDP growth for Q2 09. GDP dropped by almost 17% y/y, down from -15% y/y in Q1 09. The number was significantly better than the consensus expectation of -18% y/y and our expectation of -19% y/y.
Assessment & Outlook
We have not seen the details yet, but according to the Estonian Statistical office, valueadded decreased in the majority of economic activities, particularly in manufacturing, construction and wholesale trade. Thus, the domestic demand outlook remains rather negative. There are signs of stabilisation in retail trade, but industrial production has continued its freefall, dropping 30% y/y for a couple of months in a row. Overall, despite some positive signs, risks to economic growth in the coming quarter have not fallen away. Overall, we expect GDP this year to shrink in a range of 13-15% for the whole year.
We do not expect a significant rebound in growth in 2010. On the other hand, Estonia’s economic situation is in better shape than the other Baltic states. However, pressure on public finances due to the significant downturn in growth remains high. The ratings agency, Standard & Poor’s, recently downgraded Estonia’s rating by one notch. This downgrade mainly reflects concerns about the delay of Estonia’s Economic and Monetary Union entry plans. Despite recently implemented fiscal tightening, the risk of breaching 3% of GDP budget deficit in 2009 is significant.
