First quarter witnessed a decrease in domestic demand

Andres Saarniit, Adviser of the Monetary Policy Department of Eesti Pank
According to the flash estimate of the Statistics Estonia the gross domestic product grew by 0.4 per cent in the first quarter of 2008. A rapid moderation in the growth rate was characteristic to all the fields of activity oriented to domestic market. The sharp slowdown in economy can be explained mainly by a heightened caution by households when acquiring real estate and making consumption-related decisions. This is described, inter alia, by a considerably smaller sales turnover of consumer goods compared with the last year, a slowdown in borrowing activity and an increase in savings. Furthermore, real estate developers have adopted the wait-and-see attitude. Overall, the gross fixed capital formation in the economy as a whole was smaller (year-on-year). The outlook includes an increased risk that private consumption will be weaker than expected.
However, the rate of expansion of goods and services exports has remained close to that observed in the beginning of the last year. Therefore, the slowdown in manufacturing sector was smaller. Together with the decelerating pace of domestic demand growth the current account deficit has decreased and the economic developments have become far more balanced in this respect. The improvement of the trade balance is expected to continue.
In the next quarters, the growth rate of economy will depend largely on how rapidly domestic and external price pressures will start to decrease.

Mr. Marcis Skadmanis

The School of Business Administration Turiba

Photo: PosTimees

BusinessmanTime.com / BTNews - Estonia