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Estonia's GDP grew 1.6 percent in 2016

Estonia's fourth-quarter GDP increased 2.7 percent year over year.
Estonia's fourth-quarter GDP increased 2.7 percent year over year. Source: (Postimees/Scanpix)

According to fresh data released by Statistics Estonia on Tuesday, Estonia's gross domestic product (GDP) increased 1.6 percent year over year in 2016.

In 2016, Estonia's GDP at current prices was €20.9 billion.

The year was characterized by a slow but steady growth of the GDP. In the year's different quarters, the increase in value added in the trade, information and communication as well as transportation sectors influenced the growth of the Estonian economy the most. In the last three years, transportation had slowed the economy the most, with its decline continuing in the first quarter of 2016 as well. From the second quarter onward, however, transportation contributed positively to GDP growth at real prices.

In 2016, more than half of economic activities influenced the economy positively. Information and communication contributed to the increase of the GDP the most due to strong growth in software development services. The growth of the value added of trade was highest in the comparison of the last four years primarily due to stable growth in retail and wholesale trade. Although the value added of the largest Estonian sector, manufacturing, decreased in the first quarter, the value added increased 0.8 percent in total last year.

In 2016, net taxes on products influenced the Estonian economy positively. Receipts from value added and excise taxes grew, while payments of subsidies increased as well.

Following a decline in 2015, the real exports of goods and services increased by 3.6 percent in 2016, including the exports of services by 4.9 percent. The real imports of goods and services increased by 4.9 percent. The exports of goods and services were mainly affected by increased exports of electrical equipment, wood and products of wood as well as electronic equipment. The imports of goods and services were affected by the increase in imports of motor vehicles, base metals, pharmaceutical products and chemicals. The impact of the exports and imports of the remaining commodity groups was modest. Net exports, i.e. the difference between exports and imports, was positive in 2016. The share of net exports in the GDP was 4 percent, remaining unchanged compared to 2015.

Domestic demand increased 2.6 percent in 2016, affected primarily by increased household consumption expenditures. The increase in household final consumption expenditures was caused mostly by an increase in expenditures on transportation, food and recreation. In addition, general government and non-profit institutions' final consumption expenditures increased as well. Real gross fixed capital formation decreased 2.8 percent mainly due to fewer investments in buildings and structures by businesses and in equipment and machinery by the government sector. Domestic demand grew faster than the GDP. The total final consumption expenditures, gross fixed capital formation and changes in inventories was smaller than the GDP by output method, totaling 97.7 percent of the GDP.

In 2016, the GDP grew faster than the number of hours worked and persons employed, indicating that labor productivity per employee increased by 1.4 percent and labor productivity per hour worked increased by 1.2 percent. At the same time, labor costs related to GDP production have increased, with the unit labor cost growing 4.2 percent compared to 2015.

Fourth quarter sees 2.7-percent GDP growth

Estonia's GDP at current prices was €5.6 billion in the fourth quarter of 2016, indicating a growth of 2.7 percent compared to the fourth quarter of the previous year.

In the fourth quarter, the seasonally and working-day adjusted GDP increased by 1.9 percent compared to the previous quarter and by 2.8 percent compared to the fourth quarter of 2015.

The GDP in the last quarter of 2016 was driven the most by an increase of value added in the information and communication sector due to an increase in software development services. Furthermore, the value added in trade, transportation, energy, administrative and support service sectors as well as in manufacturing and construction also provided significant support for economic growth. Compared to recent years, more economic activities contributed positively to GDP growth.

Contributions to fourth-quarter GDP growth

In the fourth quarter, the number of persons employed and hours worked decreased, however the GDP increased. Thus, compared to the same quarter of the previous year, labor productivity both per employee and per hour worked increased. Unit labor cost also increased 2.5 percent in the final quarter of 2016.

After decreasing in the third quarter, domestic demand grew 3.7 percent in real terms in the fourth quarter of 2016 compared to the same period during the previous year. Domestic demand was mainly affected by enterprises' increased inventories of goods and increased final consumption expenditures. In the fourth quarter, real gross fixed capital formation fell 5.5 percent mainly due to a decrease of investments in buildings and structures by the business sector. At the same time, investments of enterprises in equipment and machinery increased. For all other sectors, gross fixed capital formation grew compared to the previous year.

In the final quarter of 2016, the real exports of goods and services increased 2.7 percent and the real imports of goods and services by 2.4 percent compared to fourth-quarter figures from the previous year.. The exports of goods and services grew due to an increase in the exports of electronic equipment, mineral products and wood and products of wood, while the imports thereof were affected positively by other transport equipment and base metals. The share of net exports in the GDP was 3.3 percent.

Editor: Aili Vahtla

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