OVERVIEW OF ECONOMY 2019 Tallinn 2020 Contents Foreign trade ........................................................................................................................................................... 9 The manufacturing industry .................................................................................................................................. 16 Food and beverage production ............................................................................................................................. 20 Textile production .................................................................................................................................................. 26 Clothing production ............................................................................................................................................... 29 Wood processing ................................................................................................................................................... 32 Manufacture of paper pulp, paper and paper products ........................................................................................ 36 The chemical industry ............................................................................................................................................ 39 Manufacture of rubber and plastic products ........................................................................................................ 43 Manufacture of metal and metal products ........................................................................................................... 46 Manufacture of machinery and equipment .......................................................................................................... 49 Manufacture of electronic and electrical appliances ............................................................................................ 52 Manufacture of means of transport ...................................................................................................................... 57 Manufacture of furniture ...................................................................................................................................... 61 The construction sector ......................................................................................................................................... 64 Domestic trade ...................................................................................................................................................... 70 Tourism .................................................................................................................................................................. 74 Information and communications ......................................................................................................................... 82 Transport ............................................................................................................................................................... 89 Annexes ................................................................................................................................................................. 96 Abbreviations in text: *- preliminary, short term statistics y-o-y – year-over-year no – number l.s. – left scale r.s – right scale 3 Economic review 2019 The macroeconomic situation In recent years, the Estonian economy has been in a strong position in terms of employment, income and export capacity. Economic growth has surprised positively, averaging almost 5% over the last three years. Despite the rapid growth, there should be no significant internal imbalances in the Estonian economy. Real economic growth slowed to 4.3% in 2019 and to 7.7% at current prices. The indicators of corporate confidence weakened in the middle of the year both in Estonia and in the partner countries. This was due to a slowdown in the growth of international trade and heightened economic and political uncertainty, which will inevitably reach our economy. As a result of the Economic growth has weakening of external demand, export increase started to decline in the last surprised positively, quarter. The main components of domestic demand incremented more averaging almost 5% over slowly in the second half of the year than in the first half. In the fourth the last three years. quarter, economic growth was strong at 3.9% owing to an increase in net taxes on products, while value added in the total economy increased by only 2.3%. Throughout the year, the value added was driven mainly by activities focused on domestic consumption, in particular information and communication technologies, trade, professional and technical activities, contributing a total of 2.6 points. Manufacturing still had a strong impact, although its growth of the value added declined in the last quarter as exports Throughout the year, the diminished. Economic growth was also supported by a sharp increase in the value added was driven value added of the agricultural sector. The most dramatic negative impact mainly by activities was in the energy sector on account of the decreasing competitiveness of oil focused on domestic shale energy. consumption. % y-o-y Economic growth 15 10 5 0 -5 -10 -15 -20 2003 2005 2007 2009 2011 2013 2015 2017 2019 European Union Estonia The most dramatic Source: Statistics Estonia negative impact was in the % y-o-y Domestic demand energy sector on account 60 of the decreasing competitiveness of oil 40 shale energy. 20 0 -20 -40 2003 2005 2007 2009 2011 2013 2015 2017 2019 Private demand Investments Source: Statistics Estonia Ministry of Economic Affairs and Communications • Ministry of Finance 2020 4 Economic review 2019 Domestic demand grew in 2019 at the fastest pace in the last seven years, 5.2%, and the share of domestic demand in GDP rose to 97.6%. In 2019, consumer The growth of private consumption has been rapid for the last eight years, confidence remained almost 4% per year. Parallelly, the purchasing power of wages and salaries relatively strong, and fast has surged even faster, by more than 6%. Favourable economic conditions wage growth continued have enabled not only a speedy rise in living standards but also the caused by labour accumulation of savings. In 2019, consumer confidence remained relatively shortages. strong, and fast wage growth continued caused by labour shortages. Nevertheless, private consumption growth slowed to 3.1% in 2019. During the year, increase in consumption of durable goods and services slowed down. Purchases of interior decoration products, recreational goods and vehicles increased to a greater extent. Among the services, an increased consumption of accommodation and communication services may be highlighted. According to the latest data for 2018, Estonian households saved 12% of their disposable income, corresponding to that of the eurozone's average, being significantly more than our level of prosperity would allow to assume. At the same time, a high savings rate indicates good preparedness for a possible future economic crisis. The growth rate of investments has been volatile in recent years. After marginal investment growth in 2018, the increase accelerated to 13% in 2019. The increment of investment activity was driven by companies and households, where the growth rate reached 17%. General government investment declined slightly, primarily as a result of lower spending on defense fixed assets. Capital allocation in buildings and structures with the largest share has remained stable over the last two years. Despite the cooling external environment and uncertainty about the future, corporate investment growth was broad-based, with strong increases in means of transport and real estate in particular. Nevertheless, the order portfolio started to deteriorate in 2019, while the available production capacity was sufficient. Against this background, the acceleration of corporate investment may have been temporary. Household investment was kept high by strong confidence and the labour market, which favoured Regardless of the the purchase of new real estate. The share of investments in GDP was the slowdown in the growth of highest in the last six years in 2019 (26%), but it will probably not rise to pre- foreign demand in 2019, crisis heights (35%). This is because of the lower additional need of the growth of Estonian companies for capital-intensive buildings. exports of goods and services advanced. In the light of a significant stoppage in the increase of world trade and the low level of the purchasing manager’s index of the industrial sector in recent years, the export developments of Estonia and our important trading partners remained relatively strong. Regardless of the slowdown in the growth of foreign demand in 2019 (2.2%), the growth of Estonian exports of goods and services advanced (4.9%). Thus, is spite of cost pressures attributable to wage growth, the export market share in foreign markets continued to increase. Both goods and services contributed to the growth of exports. The growth of the services sector was principally based on the rapid boost of the export turnover of information and communication sector and business services. The success of the field of IT in foreign markets has enabled the sector's exports to double in the last four years. Of the goods of Estonian origin, the advancement was driven by the increase in the export volumes of food products, mechanical machinery and optical