How Sweden busted Estonia's economy

Sweden's economic slowdown is affecting exports from Estonia in yet another example of how a weak economy in one country can drastically affect others.

By , Guest blogger

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    A Sweden national flag is waved during the gold Bandy World Championships game in Kazakhstan's commercial capital Almaty.
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In the beginning of 2011, Estonia had the highest growth in Europe at 9.5%. This rate of yearly increase has now slowed down dramatically to 4% in the fourth quarter, with the quarterly change from the third quarter actually being negative.

The reason for this weakening in growth is of course the fact that the overall European economy is weakening dramatically. More specifically it seems to be the slowdown in Sweden that is weakening Estonia's economy. In January (2011), exports to Sweden grew 128% to €162 million, but in November exports to Sweden actually declined from a year earlier, by 27% to €122 million.

The numbers may seem small but remember first of all that we are first of all talking about monthly numbers so at annualized rates these numbers are 12 times bigger, and secondly that Estonia is a really small country with only slightly above 1.3 million people and a GDP of only about €15 billion, which can be compared with about €11.5 trillion for the United States and about €400 billion for Sweden. The difference in the size of the economies of Sweden and Estonia is roughly the same as the difference between the United States and Sweden.

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So, at annualized rate the gain exports to Sweden was €1.1 billion (12*(162-(162/2.28)) in January while the loss in exports in November was €500 million (12*(122-(122/0.73)). The swing from rising to falling exports to Sweden was thus €1.6 billion at an annualized rate, more than 10% of GDP for Estonia! To the extent the value added of these products reflected imported inputs, the loss in value added for Estonia was less than that, but even so it seems clear that both the initial boom and even more so the dramatic slowdown now in Estonia reflects largely if not entirely developments in exports to Sweden.

Why did the change in exports to Sweden change so dramatically then? It seems that it reflected in part that the Swedish economy has slowed down dramatically too and in part that during late 2010 and early 2011 a few orders of a one time nature of electronics equipment were delivered to Sweden, deliveries that had a great impact on Estonia's economy because it is so small.

The Christian Science Monitor has assembled a diverse group of the best economy-related bloggers out there. Our guest bloggers are not employed or directed by the Monitor and the views expressed are the bloggers' own, as is responsibility for the content of their blogs. To contact us about a blogger, click here. This post originally ran on stefanmikarlsson.blogspot.com.

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