Estonia’s economy contracted last quarter for the first time in four years as exports to the country’s Nordic neighbors declined.
Gross domestic product shrank 1.9 percent from a year earlier after a 0.3 percent increase in the fourth quarter, ending uninterrupted growth since the second quarter of 2010, the statistics office in the capital, Tallinn, said today on its website. The economy declined 1.2 percent from the previous three months.
The Baltic eurozone nation, whose exports amount to 88 percent of GDP, has been hurt by declining Swedish and Russian demand for its goods in the past three quarters. The government cut this year’s growth forecast to 2 percent last month as sanctions imposed against its former Soviet neighbor may further dent exports.
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 closed at 55 basis points on May 9, 7 basis points above an eight-year low of 48 on March 7, according to data compiled by Bloomberg.
Estonia’s economy is among the European Union’s most vulnerable to worsening trade and financial links with Russia, Moody’s Investors Service said last week. The economy may fail to accelerate this year and stagnate in 2015 if Russia’s GDP shrinks a cumulative 5 percent in two years and gas supply to Europe via Ukraine is cut for 12 months, it said.
Exports of goods, adjusted for inflation, declined from a year earlier for a third quarter, the office said, without specifying. Transport, real estate and energy industry also contributed to the decline, it added.
The European Commission last week cut its 2014 growth forecast for Estonia to 1.9 percent from 3 percent, while the International Monetary Fund reduced its estimate to 2.4 percent from 2.5 percent in March, citing concerns over competitiveness following some of the fastest wage increases in Europe.
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