Estonian Economy Grows Least Since 2010 as Forecasts Missed

Estonia’s economy slowed more than economists estimated for a third straight quarter to the weakest pace in three years as construction and exports slumped.

Gross domestic product rose 0.4 percent from a year earlier, the smallest increase since the Baltic economy exited a recession in 2010 and down from 1 percent growth in the second quarter, the statistics office in the capital, Tallinn, said today on its website. That fell short of all four estimates in a Bloomberg survey, which had a median forecast of 1.4 percent.

The economy of the newest euro member is set to expand 1.3 percent this year, slowing from 3.9 percent in 2012 when it posted the European Union’s second-fastest growth rate behind neighboring Latvia, the European Commission forecast last week. While economic growth remains lackluster, Estonia exited a recession as GDP increased a seasonally adjusted 0.4 percent from the second quarter, following contractions of 0.2 percent and 0.1 percent in the first two quarters.

“The main concern is the recent slump in exports,” Liza Ermolenko, an emerging-markets economist at Capital Economics Ltd. in London, said by e-mail. “If demand for Estonia’s exports does not recover over the coming months, growth could be much weaker than most expect.”

Estonia’s Creditworthiness

With no outstanding bonds, investors speculate on Estonia’s creditworthiness by trading credit-default swaps. The cost to insure Estonian debt against nonpayment for five years was little changed at 64 basis points at 1 p.m. in Tallinn, 13 basis points below this year’s high of 77 basis points on June 24, according to data compiled by Bloomberg.

Construction has declined this year as public projects financed by the United Nations’ carbon quota sales since 2010 were brought to an end, while weaker-than-expected demand from neighboring Finland and Russia has curbed shipments.

An economic recovery in the U.S. and the euro area “should help Estonia’s external demand and economic growth to accelerate gradually,” the central bank said today in an e-mailed comment.

Full-year growth will probably trail the Finance Ministry’s September forecast of 1.5 percent, the ministry said in an e-mailed statement, citing weak exports and declining value-added tax collection.

Exports of goods, adjusted for inflation, declined 3 percent from a year earlier in the first drop since 2009, the statistics office said. Foreign sales of goods, which make up two thirds of GDP, fell in September for a fourth month, mainly due to lower demand for fuel and electronics from the U.S. and Sweden, the office said in a separate statement today.

“Economic growth, quarter on quarter, should presumably continue in the fourth quarter, and we will probably also see an improvement in growth year on year,” Ruta Arumae, a Tallinn-based economist with SEB AB, said by e-mail. She reiterated her forecast of 1.3 percent GDP growth in 2013.

Economic growth may accelerate to 3 percent next year, according to the European Commission.

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