TALLINN - Baltic markets were in a state of shock this week to learn that Estonia's economy nearly flattened out in the first quarter of the year on the basis of revised GDP data released by the statistics agency.
The agency announced June 9 that gross domestic product came to a screeching halt, plummeting to 0.1 percent for the three month period. By comparison, in the fourth quarter of 2007 GDP grew 4.5 percent.
The result is a downward revision on an earlier estimate of 0.4 percent, which had surprised most analysts and led many to believe that the revised data would see the figure tick upward.
Nothing of the sort happened, however, and now the verdict is clear: Estonia is undergoing a hard economic landing.
"It is obvious that a hard-landing scenario has already materialized in the Estonian economy," Danske Bank wrote in a research note. "We expect a negative growth performance in 2008 and only marginal improvement in the next year."
Local analysts expressed surprise at the news.
"The result was below our expectations," Hansabank Markets analyst Maris Lauri told the Baltic News Service.
She said she saw a silver lining in the fact that even though private consumption was slightly weaker than expected, investments in plant and equipment were surprisingly strong.
"That offers us hope that the economy will reach the turning point soon," she said, adding that the final growth figure may still change when the Bank of Estonia releases data about the balance of payments at the end of this month.
Ruta Eier, an analyst with SEB Pank, said that the structure of economic growth in the first quarter was full of surprises, the biggest being that the reduction of exports in constant prices had a bigger negative effect than reduced domestic demand.
"On the basis of export growth at current prices we would have expected it to be the component that keeps growth positive. That a reduction took place in constant prices suggests that the prices of exported products have moved up quickly and volumes are actually not increasing," Eier said.