OREANDA-NEWS. May 13, 2010. The flash estimate of Statistics Estonia shows that Estonia's first-quarter GDP was 2.3% smaller on the same period a year ago. The contraction was the same size also compared to the fourth quarter of 2009. The recovery of GDP growth is still fickle as a result of growing external demand on the one hand and weak domestic demand on the other, reported the press-centre of Eesti Pank.

The first-quarter GDP received a positive impact from increasing exports. Goods exports in current prices went up by nearly a sixth compared to last year. As expected, the GDP of the first quarter was affected by the usage of stocks that were accumulated at the end of 2009, before the January tax increases.

According to the Estonian Institute of Economic Research, capacity underutilisation is still evident in industry, where just two-thirds of resources were used as at April. Therefore, the majority of industrial sectors do not need to make extra investments to cater for the current demand.

Adjustments made in companies to cut costs and increase efficiency are stepping up productivity and profitability. This helps create preconditions for the start of a new investment cycle. In order to avoid possible growth difficulties in future, companies need timely and sufficient financing possibilities to maintain or expand their production capacity.

Domestic inflationary pressures continue to be weak as a result of modest private consumption. Growing unemployment resulted in declining disposable income, so the low in retail sales continued in the first quarter. Although the number of registered unemployed decreased in April, unemployment is still high. Thus, private consumption is not expected to improve considerably in the near future.

Eesti Pank's spring forecast, which expects economic growth to be 1% in 2010, is in line with the first-quarter growth.