Estonia’s GDP grew by 1.2% year-on-year in the fourth quarter of 2024 and by 0.7% from the previous quarter – the strongest quarterly growth since late 2021, according to the Bank of Estonia.
The growth was notably faster than indicated by the recent flash estimate of GDP and slightly exceeded the central bank’s latest forecast.
“The monthly statistics have shown growth picking up for some time now. Exports from manufacturing strengthened in the second half of last year, first in the euro area and then outside it in the fourth quarter. Business expectations for growth in the months ahead have also been gradually improving,” the Bank of Estonia stated.
However, the data does not yet signal a sharp economic rebound. While corporate expectations have firmed, growth is expected to remain moderate. Business survey indicators improved at the start of the first quarter, with labour shortages becoming more pronounced.
“This suggests companies are planning to expand, but there is no longer enough available labour for all, as is typical in such conditions. Even so, business sentiment remains below historical averages, indicating the economy is recovering but still below earlier levels,” the central bank noted.
Private consumption boosted by car purchases
Economic data continues to show a disconnect between key indicators. While manufacturing value-added improved significantly, GDP growth could not be fully explained by consumption, investment, or exports. Instead, much of the growth came from changes in inventories and statistical discrepancies.
“Private consumption and exports increased, but investment fell sharply. Encouragingly, the decline was driven by lower government investment rather than corporate investment. It is likely that some planned public-sector investments were postponed, as government investment was much lower than forecast.”
Private consumption remained strong, partly due to a surge in car purchases at the end of 2024 ahead of the car tax introduction in early 2025. However, this had a limited effect on economic growth, as Estonia does not produce cars, and higher purchases primarily reflected in import growth, according to the Bank of Estonia.
“Despite signs of recovery, economic uncertainty remains high. A small, open economy does not benefit from excise duties and trade barriers, and geopolitical risks add to the challenges. Businesses may factor in future tariffs, affecting prices and global trade, even if those tariffs are ultimately not imposed.”
Sounds like the spike increase in auto sales will not persist, instead likely to decrease as result of the taxation increase.
Has Estonian population dropped, that the article points out that “but there is no longer enough available labour for all”?