The flash estimate of the first-quarter GDP is in line with the baseline scenario of Eesti Pank's spring forecast, which expects a 12.3% contraction this year.According to the preliminary estimates of Statistics Estonia, GDP decreased 15.6% in the first quarter of 2009, year-on-year. The decline is expected to be stronger in the first half of the year. The first signs of stabilisation in the external environment in recent weeks confirm this.
The sharp contraction was primarily driven by a further slowdown in external demand, reflecting the impact of the global crisis on Estonia's main trade partners and the entire European Union. The decline in Estonia's first-quarter industrial production and export volumes is comparable to that of our prime export partners. Week domestic demand gave an additional boost to the decline.
Consumer confidence and business turnover shrank in the first quarter and a substantial amount of production resources has been left unutilised. The low utilisation of production capacity increases the proportion of investment costs in expenditure and thus dampens investment. The contraction of investment will contribute to the economic downturn also in the coming quarters. Therefore it is vital to continue with the ongoing structural reforms.
