"Although after three years of decline this was the first year of growth, last year will remain a year of disappointment. Growth was expected, but it turned out to be modest," said Luminor chief economist Lenno Uusküla.

"Moreover, for the economic cycle to become clear, most sectors would need to move in the same direction. We are not yet seeing that or a clear upswing in the economy. Half of the sectors showed growth and half contraction," Uusküla added.

"Looking at the fourth-quarter figures compared with a year earlier, growth can be seen in manufacturing, which contributed 1.4 percent to gross domestic product, and in the information and communications sector, which contributed 0.7 percent," Uusküla said. "However, wholesale and retail trade declined by 0.75 percent, while construction and social welfare fell by 0.4 percent. Given last year's decline in households' purchasing power, the drop in private consumption and particularly in these sectors was to be expected."

According to Uusküla, economic growth is expected to accelerate this year, primarily as inflation eases and purchasing power increases, as well as due to a larger public-sector budget deficit.

"It is unclear how much of the additional income people will spend and on what, as well as how much of defense spending will remain in Estonia. Therefore, forecasts for this year are fairly imprecise," Uusküla added.

Bigbank chief economist Raul Eamets also said economic growth came in lower than initially expected.

"Compared with the preliminary estimate, fourth-quarter economic growth was more modest," Eamets said. "While the flash estimate initially put fourth-quarter growth at 1 percent, real data showed it was 0.7 percent, bringing overall economic growth for last year to 0.6 percent."

The result was not surprising, but in essence it showed that in real terms the economy stood still last year, Eamets said.

"January retail trade figures were also released today. Although at first glance the situation may seem positive — total retail trade increased by as much as 8 percent in January compared with January last year — unfortunately the trends that prevailed last year continued," Eamets added. "In other words, trade was driven primarily by increased sales volumes at gas stations, which rose by as much as 24 percent year on year in January. This has been driven for quite some time by a price war between fuel retailers and Lithuanian truck drivers purchasing cheap diesel fuel in Estonia."

"Sales of manufactured goods also increased, but sales volumes at grocery stores remained in negative territory due to rising food prices. In short, the same broad trends we saw last year continued," Eamets said.

"Looking ahead, wage growth and the abolition of the so-called tax hump could boost private consumption this year, as people's real incomes are rising. At the same time, wage growth puts additional pressure on businesses, which may be reflected in higher prices for final services or goods. Income growth also puts upward pressure on prices through increased demand. Therefore, we should not expect inflation to be very low this year," Eamets noted.

Bigbank forecasts inflation at 3.3 percent this year.

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