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Estonian economy contracted less than expected in 2023

In Estonia in the fourth quarter, the biggest positive contributors to GDP were agriculture, forestry and fishing, and trade. The construction sector was a negative contributor. Photo: Pixabay

According to Statistics Estonia, in the fourth quarter of 2023, the gross domestic product (GDP) decreased by 2.7% compared with the same period of 2022. The GDP at current prices was 9.9 billion euros in the fourth quarter. In 2023 as a whole, Estonia’s GDP decreased by 3% and amounted to 37.7 billion euros at current prices, announced Statistics Estonia.

Robert Müürsepp, the national accounts team lead at Statistics Estonia, said that there was a broad-based recession in Estonia throughout last year. “There were positive contributions from just a few economic activities, and the major sectors mostly experienced decline. Last year, the economy was boosted the most by trade and real estate activities, while information and communication had the biggest negative impact. But the contribution of the latter also turned positive in the second half of the year,” explained Müürsepp.

In the fourth quarter, the biggest positive contributors were agriculture, forestry and fishing, and trade. There was a continued decline in the energy sector, manufacturing, professional, scientific and technical activities, and transportation and storage. The construction sector was also a negative contributor, continuing the trend of the last year and a half.

Müürsepp noted that Estonia has not suffered such broad-based economic decline since the real estate bubble burst. “Even during the year of the coronavirus pandemic, there was a bigger number of positive contributors to GDP than in 2023. However, it should be mentioned that, last year, both gross domestic product and value added continued to show growth at current prices. The weak performance in real terms in the last two years has been caused by the rapid increase in prices, which has affected all economic activities,” added Müürsepp.


The year ended with a rise in tax revenue and private consumption

Inflation slowed down at the end of the year and this helped to reverse the trend of several GDP components which now started to rise after a steady downtrend for most of the year. In the fourth quarter, the value added of the non-financial corporations sector fell by 5.9%, while the financial sector showed a 0.5% growth. In 2023 as a whole, value added in these sectors decreased, respectively, by 4.4% and 5.2%. The general government had its weakest performance in the first quarter when its value added grew just by 1.3%. The growth was 4.4% in the fourth quarter and 3.5% in 2023 as a whole. The biggest shift occurred in tax revenue. Net taxes on production were in clear decline for the first three quarters but then grew by as much as 6.3% in the fourth quarter. As a result, the yearly decline was just 1.9%.

In the fourth quarter, there was also an upturn in private consumption, as the decrease of previous quarters was replaced by a 0.5% increase. In 2023 as a whole, private consumption fell by 1.5%. Last year, the biggest decrease occurred in households’ expenditures on other goods and services, furnishings, and recreation. The most significant rise occurred in expenditures on communication, housing, and restaurants and hotels. In the fourth quarter, expenditures on education and transport also grew significantly. In 2023, households’ expenditure on goods decreased by 3.1%. Their expenditure on services remained more or less at the same level, growing by 0.3% year on year.

Government consumption experienced a downturn in the third quarter but recovered quickly and grew by 2% in the fourth quarter. The total increase in government consumption in 2023 was 0.9%.

A difficult year for investments and foreign trade

2023 was a volatile year for investments but, in the fourth quarter, investments remained almost the same as in the corresponding quarter of 2022 (down by 0.4%). There was a positive impact from government investments in other machinery and equipment and weapons systems (+47.6%) and in other buildings and structures (+15.5%). The biggest negative impact came from the investments of non-financial corporations in the same groups of assets (down by 13.8% and 6%, respectively). In 2023 as a whole, investments fell by 3.4%. The biggest boost came from investments in dwellings which rose by 14.1%. Investments in transport equipment fell by 41.1% and thus made the biggest negative contribution.

In foreign trade, the situation remained difficult in the fourth quarter – exports of goods and services fell by 9% and imports by 6.6%. In trade in goods, the decrease was 13.5% in exports and 10.1% in imports. This was primarily affected by electricity, manufacture of wood, and chemical products. Trade in services fared slightly better: exports were down by just 0.7% and imports up by 2.9%. Here, performance was hampered mainly by the decline in the transport sector, which was primarily due to rail transport services. At the end of 2022, foreign trade represented 86% of the GDP. This share was down to 78% by the end of 2023.

The seasonally and working-day adjusted GDP decreased by 0.7% compared with the third quarter of 2023 and by 2.5% compared with the fourth quarter of 2022.



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