Riga - Estonia's economy continues to stagnate after a decade of spectacular growth, according to official figures released Thursday.

In August 2008, industrial production decreased by 3 per cent year-on-year Statistics Estonia said.

Manufacturing production fell by 2 per cent owing to dwindling orders in domestic and external markets driven by a sharp drop in consumer demand as the effects of the global "credit crunch" make themselves felt.

One of the most telling figures was a 20 per cent reduction in beer production, while Statistics Estonia also noted that wood manufacturing, which is an important industry and major employer in Estonia "is endangered by a serious shortage of materials."

"The supply of domestic wood was hindered by weather conditions, and imports of wood from Russia by high customs tariffs," it said.

The downbeat news came just a day after Statistics Estonia revealed retail sales decreased by 6 per cent year-on-year during the same period.

Commenting on the drop in production, Danske Bank's senior Baltic analyst Violeta Klyviene told Deutsche Presse-Agentur dpa: "The decline was a little bit smaller than we expected. However we think it's too early to talk about stabilisation in industry sector.

"The most worrying thing is that consumer confidence indicators are still extremely low in all three Baltic states."

Estonia recently became the first country in Central and Eastern Europe to officially go into recession after two quarters of negative GDP growth. (dpa)