Analyst: Economic recovery will take longer than expected

Meat counter at Tallinn's Central Market.
Meat counter at Tallinn's Central Market. Source: Priit Mürk/ERR

According to LHV economic analyst Kristo Aab, Estonia can expect to see its economy recover in the second half of the year. This recovery, however, has been expected for some time already.

A flash estimate issued by Statistics Estonia on Monday indicated that Estonia's GDP shrank by nearly 3 percent on year in the second quarter of 2023.

According to Aab, it must be kept in mind that the newly published estimate isn't detailed yet.

"But it does indicate a general trend — that our economy is still in recession compared with last year, and smaller in total," he explained. "Perhaps it's worth considering that the longer-term view behind it has remained relatively unchanged for the last six months or more."

Forecasts called for Estonia's economy to have bottomed out at the end of last year or beginning of this one, with economic growth to follow. Aab noted that this forecast still holds, even in light of Monday's flash GDP estimate.

Estonia can expect to see economic growth in the second half of this year, he said, adding that the economic downturn cycle of recent years has passed in delaying expectations of economic recovery.

"In the grand scheme of things we're still moving in the right direction with this vision, but all of this takes time, and a little more time than we would have expected or thought half a year ago," the analyst said.

In terms of industrial production and retail sales volumes, however, Aab would have liked to have seen better results already. "But it isn't there yet; we're still very much in a deficit," he acknowledged. "Sometimes it seems as though we're improving, but not quickly or clearly enough."

Annual inflation slowed to 6.3 percent in July, with consumer prices down 0.4 percent on month. Aab noted that inflation is calculated based on average consumer shopping baskets, i.e. typical household goods and services purchases, but in reality, inflation impacts various consumers differently.

"Inflation is slowing — that is a fact," he said. "This is largely due to the base effect, as the end of last summer saw rapid price hikes."

In terms of commodity groups, inflation has slowed in energy-related costs in particular — whether transport costs or housing costs, he continued, adding that these are also the costs that actually exponentially drove prices up.

"But daily expenditures on food, the prices of manufactured goods — the price increases are firmly entrenched there," Aab acknowledged.

The LHV analyst noted that energy and commodity price increases are a global phenomenon, and that there is little the Estonian state or consumers can do there.


Follow ERR News on Facebook and Twitter and never miss an update!

Editor: Aili Vahtla

Hea lugeja, näeme et kasutate vanemat brauseri versiooni või vähelevinud brauserit.

Parema ja terviklikuma kasutajakogemuse tagamiseks soovitame alla laadida uusim versioon mõnest meie toetatud brauserist: