The economic shine of the Baltic “star” Estonia is fading

The economy of Estoniawhich was “star” Among the three Baltic countries and a leader in innovation, it is finding it difficult to avoid the current recession and experts consulted by EFE also warn of a drop in the country’s potential that would allow its immediate recovery.

In addition to recording higher growth and better wages, Estonia is also the place where its entrepreneurs invented Skype and the global money transfer system Transferwise (now Wise), its administration is highly digitalized and its e-residency system is also cited as an example. .

However, Estonia’s GDP has fallen for several consecutive quarters: a 2.5%a 3.2% and a 2.9% year-on-year in the third, second and first quarters, respectively.

According to Statistics Estonia, in September industrial production at constant prices decreased by 12.5% interannual.

“Estonia’s GDP has contracted quarter-on-quarter since the beginning of last year and in 2023 the economy will already be in recession for the second consecutive year”Tonu Mertsina, an economist at Swedbank in Estonia, told EFE.

He added that “The volume of manufacturing production has been falling since June of last year” and? “the proportion of industrial companies affected by insufficient demand has increased to the point 82%the largest among neighboring countries.”

“About a third of the decline in the first nine months of this year came from the timber industry. In addition, the decline in the production of construction materials and metal products, in the volume of the electronic, chemical and furniture industries have contributed in greater proportion to the decline in the volume of manufacturing production.”accurate.

For his part, Lenno Uusküla, economist at Luminor Bank of Estonia, points out in a recent study that “It is especially clear that the economic prospects for the euro zone and the Nordic countries have darkened over the summer”which “constitutes a substantial part of the reasons that have delayed Estonia’s economic recovery for a year.”

“There has been very little investment in the development of production and services for almost a year. If anything, homes and businesses were looking for ways to save energy or installing solar panels. Although these activities were very important preparations to face a possible energy crisis, they contributed little to capacity development.he points out.

Warns that “If the level of investments remains low for a year, Estonia’s growth potential will also decrease.”

“Overall economic confidence has continued to deteriorate. Industrial companies estimate that their competitiveness has worsened substantially, and this may limit the recovery of production and exports when demand begins to improve. We hope that foreign demand will begin to rebound next year, but it will be very slow”Mertsina agrees.

Morten Hansen, director of the Department of the Stockholm School of Economics in Riga, told EFE that the three Baltic economies seem to be on the same path.

“Latvia may not be in recession, but only by a slim margin. As (almost) always, there are no big differences between the three in terms of real development”he points out.

Some say that Latvia achieves above-zero growth only thanks to RailBaltica, where major construction works are underway on the rail link between the three Baltic countries and Western Europe, he adds.

The only area in which Latvia may be outperforming Estonia is in consumer prices, which rose by 2.1% year-on-year in October, compared to 4.9% from Estonia.

The three Baltic countries have had single-digit inflation rates for several months, although they also reflect the “base effect” from the double-digit inflation of early 2023 and last year.

Regarding Estonia, Uusküla writes that “Next year’s growth is not expected to exceed 0%“, but adds that “however, a more optimistic 2025 is expected.”

“Recessions always end. By then, the euro zone will have restarted its growth engine, price increases will have attenuated and interest rates will continue a downward trend,” indicates.