OREANDA-NEWS. February 25, 2014. Initial data from Statistics Estonia show that the Estonian economy did not grow year-on-year in the fourth quarter of 2013, and shrank 0.1% quarter-on-quarter. In 2013 as a whole, the economy grew by 0.7%, which is less than Eesti Pank had forecast.

A major role in the slow growth of the fourth quarter was played by the energy sector. Heat production volumes were one sixth smaller than a year earlier due to the unusually warm weather. Although this brings down growth in the GDP calculation, lower heating costs eased the pressure on the budgets of households and companies in the short term. At the same time, households were bolder in their consumption decisions and they not only made unavoidable purchases at the end of last year, but also bought increasing amounts of durable goods.

However, faster economic growth needs to be accompanied by investment, as sustainable growth should be based on capital growth. Investment in new production capacity is not likely to have increased significantly in the fourth quarter. Imports of capital goods declined in the fourth quarter if transport vehicles are excluded, imports of which increased due to investment by state companies. Utilisation of production capacity is now close to its average level of before the crisis, meaning that the need for new investment is increasing.

Although preliminary assessments show that economic growth was lower than was forecast, demand in the external environment is gradually recovering. The output of manufacturing industries increased by notably more than GDP did in the fourth quarter, growing by a seasonally adjusted 2% in the quarter, while value added increased by 10% over the year according to initial estimates. Sales growth in the manufacturing sector was supported in the fourth quarter by increased exports towards the euro area, though exports of manufactured goods away from the euro area declined. While there is optimism in Europe about the economy recovering, the risks to growth in developing economies have increased somewhat recently.

Eesti Pank's forecast in December predicted that growth in the economy will accelerate this year and will stand at 2.6% in 2014.