The European Bank for Reconstruction and Development (EBRD) has lowered its forecast for Estonia's economic growth this year by 0.2% to 3.6%, citing poor corporate investment.
The EBRD highlighted that, following the investment-led strong gross domestic product (GDP) growth recovery of 4.9% in 2017, economic growth in Estonia slowed down to 3.5% on year in the first half of 2018. This growth deceleration has been largely induced by poor corporate investment, which was only marginally offset by the higher investment expenditures of households and the public sector.
"Labour shortages have been increasingly seen as a major constraint on business investment and exports, in particular in relatively less productive sectors," the EBRD said.
Economic growth is expected to decelerate to 3.6% in 2018 and further to 3% in 2019, the European bank said.
Compared to the EBRD's May forecast, the economic growth forecast for Latvia and Lithuania was raised by 0.4% to 3.9% and by 0.2% to 3.4%, respectively. The 2019 forecast for both countries was left unchanged at 3.5% and 2.8%, respectively.
The EBRD also noted that in Central Europe and the Baltic states as a whole, growth accelerated in the first half of 2018 from 4.4% to 4.7% due to consumption growth led by salary increases.
Next year, growth in the region is projected to normalise from visible overheating, slowing from 4.3% in 2018 to 3.5% in 2019. According to the EBRD, the dynamism of household consumption is likely to offset the negative growth impact of shortages of skilled labour, the slower growth of global trade and a softening EU business climate.
Editor: Aili Vahtla