Economic Growth in Estonia Highest in Baltic States, EU

Estonia saw the highest economic growth in the EU in 2011 according to a report on Baltic Business News. Citing SEB bank’s Baltic Household Outlook, the article showed how in addition to Estonia’s impressive growth rate (7.6 per cent), neighboring Lithuania (5.9 per cent) and Latvia (5.5 per cent) saw the second and third highest rates respectively.

This rate of growth in Estonia, which exceeded expectations, was largely export-driven, but improvements in domestic demand have also been in evidence.

Naturally the vagaries of the external economic world can and will have their effect on future growth. However another sign of the ever sought after green shoots of recovery is the fact that unemployment has also fallen in Estonia and across the Baltic States. When compared with the low point in 2010, employment in Estonia has risen some 11 per cent. Indeed thesese two developments, economic growth and falling unemployment naturally tend to go hand-in-hand and, again, are largely export-driven.

In Estonia, the construction sector in particular has seen an increase in employment, obviously benefitting the Estonian real estate sector, along with manufacturing, transport and storage. That being said, unemployment is in no way back to pre-crash levels.

Real wages have also seen an increase in the Baltic States over the same period, in particular in Estonia where the last quarter of 2011 saw real wages at 6.3 per cent higher than the corresponding period a year earlier.

As noted previously on our Tallinn Property blog, the residential housing market has been improving over recent months in Tallinn, so these economic indicators are further evidence of this welcome trend.

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Estonian Property Prices Rising Despite Most Countries Seeing A Fall

According to a recent  global property report from prestigious real estate company Knight Frank, whilst the general global trend for house prices is for a continuing  fall, Estonia is bucking this trend and seeing rising prices.

Written by Kate Everett-Allen, the report referred to Knight Frank’s own Global House Price Index (GHPI), where Estonia saw the second highest property price rise in the world y-o-y between December 2010 and December 2011 with a 12.3 per cent GHPI rise (only Brazil was higher) and, whilst more recent rises have been more modest, it is still well ahead of many countries, and much of Europe in particular.

The 6 month GHPI figure stood at 4.4 per cent rise (only Germany was higher at 5 per cent, and Ireland saw a drop of -9 per cent over the same period) and the 3 month period GHPI stood at 1.1 per cent (compared with – 1.1 per cent for the UK).

Whilst the slowdown in China and other Asian countries, not to mention North America, has had its effect on the index, Europe stands as the worst affected region with all 12 bottom spots being occupied by European countries, which makes the Estonian ‘blip’ all the more surprising. In addition to Germany, the only other European countries to have seen an increase are Iceland, Norway and Switzerland; naturally the continuing Eurozone crisis has taken its toll.

60 per cent of countries polled saw a drop in prices over the final quarter of 2011. In addition to the Eurozone crisis and other global economic uncertainty, the report also cited stricter mortgage lending requirements and falling consumer confidence.

“If ..[the] .. trend spreads to more locations, the overall GHPI could easily slip into negative territory during 2012, especially if the slowdown in Asia continues”, the report stated.

Knight Frank is a truly global, high quality commercial and residential real estate agent with a presence in 43 countries worldwide. The original report is available here.

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