Central Bank: 'Three major causes' for economic slowdown

There are three main reasons behind the slowdown. One of them lies in the weakening of the oil shale sector.
There are three main reasons behind the slowdown. One of them lies in the weakening of the oil shale sector. Source: Siim Lõvi/ERR

The Bank of Estonia said there were three main reasons for the slowdown in economic growth, which included the decreased competitiveness of shale oil.

However, while the 3.6 percent economic growth was in line with its latest prognosis, with the weakening of the external environment, a sharper deceleration could have been anticipated.

"The yearly economic growth in the second quarter according to Statistics Estonia was 3.6 percent, which can largely be attributed to the areas of information and communication as well as professional, scientific and technical activities. If we leave these fields aside, we can see that the impetus of economic growth has notably decelerated," Bank of Estonia economist Kaspar Oja said.

Without rapid growth in those fields, economic growth in the second quarter would have been around 2 percent, Oja noted.

The slowdown of economic growth results from three major causes.

"Firstly, the external environment has weakened -- the expectations of European industrial enterprises for the coming months are more pessimistic than before. While during the first months of this year, the production of Estonian industrial enterprises exhibited growth despite the deterioration of the economic sentiment in Europe, in June, however, the production of industrial enterprises sharply decreased in monthly comparison," he said.

The second hindrance to economic growth stems from the problems in the oil shale sector, and first and foremost from decreased competitiveness in the area resulting from the European Union's environmental policy.

Thirdly, internal demand is showing signs of decline. 

"Private consumption in the second quarter only grew by 1.1 percent and the construction sector, too, has grown this year at a much slower pace than last year," Oja said.

Despite the deceleration of economic growth, the economy is in good shape, Oja said, as the rate of unemployment remains low, wage growth is rapid and entrepreneurs continue to deem the shortage of labor a problem.


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Editor: Helen Wright

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