Russia bans Estonian dairy and fish products import

The Russian plant and animal health agency Rosselhoznadzor has removed import restrictions from a number of Estonian companies, with bans on five companies still in force.

Rosselhoznadzor lifted bans from four dairies and fishery companies in January and three more in March, allowing the companies to export to Russia, Belarus and Kazakhstan.

The temporary import restrictions were announced on December 25 on five dairy and six fish packing companies, and became effective January 9.

Two other restrictions slapped on companies in November also remained in place while a new ban, on fish producer TÜ Eesti Kutseliste Kalurite Ühistu, will take affect on July 15. Rosselhoznadzor said it needs to check the company’s produce in its laboratory.

Estonian fish products are traditionally popular in Russian markets and Russia has a heavy reliance on EU producers for food.

Source: ERR News

Viru Chemistry Group’s business influenced by fuel requirements

One of Estonia’s biggest exporters, VCG Oil, will expand its production volume this year, but due to changing fuel requirements for ships on the Baltic Sea, the prices might drop, leading the company to focus on other markets and search for opportunities to add value to it il products.

The Chairman of the Board of VCG, Priit Rohumaa, said VCG’s production quantities in 2014-15 will increase over 50 percent thanks to new factories. However, Rohumaa said the main use for their oil is ship fuel in the Baltic Sea region. But due the fact that in Estonia the current fuel standard is forcing ships to reduce the sulfur content in their oil.

Next year VCG must find another market or find other ways to use their oil.

“One option is to refine the same products into more expensive fuels with a lower carbon-content,” Rohumaa said. “These are very expensive investments, but these plans have lurked in the manufacturer’s mindsets for a while now.

“Another possibility is to focus on more distant markets, because the strict sulfur-restrictions are limited to the Baltic Sea and partly to the Canadian and American coastal waters, but the world’s oil market operates at higher sulfur contents until 2020. Therefore our markets will shift.”

Source: ERR News

In May foreign trade decreased

According to Statistics Estonia, in May 2014, exports of goods decreased by 9% and imports by 4% at current prices compared to May of the previous year. The decrease in exports and imports was mostly influenced by a fall in the trade of electrical equipment and mechanical appliances.

In May, exports from Estonia amounted to 1 billion euros and imports to Estonia to 1.1 billion euros at current prices. The trade deficit was 138 million euros and it increased by 56 million euros compared to May 2013.

The biggest share in Estonia’s exports was held by electrical equipment (19% of Estonia’s total exports), followed by mineral products (10%), agricultural products and food preparations (10%) and wood and products thereof (10%). A significant decrease occurred in the exports of electrical equipment (down by 46 million euros) and mineral products (down by 15 million euros). At the same time, there was an increase in the exports of agricultural products and food preparations and miscellaneous manufactured articles (both up by 3%).

In May, the main commodities imported were electrical equipment (17% of Estonia’s total imports), mineral products (13%) and agricultural products and food preparations (11%). The biggest decrease occurred in the imports of electrical equipment and mechanical appliances (down by 28 and 26 million euros, respectively). At the same time, the imports of mineral products increased by 21 million euros.

The top destination country of Estonia’s exports was Finland (16% of Estonia’s total exports), followed by Sweden (16%) and Russia (11%). Electrical equipment and agricultural products and food preparations were the main commodities exported to Finland; electrical equipment and wood and products thereof were the main commodities exported to Sweden; and mechanical appliances and agricultural products and food preparations were the main commodities exported to Russia. The biggest decrease occurred in exports to Sweden (down by 38 million euros) due to decreased exports of electrical equipment. As for CIS countries, the decline was the biggest in exports to Russia (down by 27 million euros) and to Ukraine (down by 4 million euros). Exports to Russia decreased due to reduced exports of mechanical appliances (incl. shovels, excavators) and miscellaneous manufactured articles (incl. furniture). In case of Ukraine, exports of all products decreased by nearly a half. Exports to Belgium increased the most (up 21 million euros), mainly because of the increased exports of mineral products.

The main countries of consignment were Finland (15% of Estonia’s total imports), Germany (12%) and Sweden (12%). The main commodities imported were mineral products and electrical equipment (from Finland), transport equipment and mechanical appliances (from Germany) and electrical and transport equipment (from Sweden). There was a decrease in imports from the United Kingdom (down by 30 million euros) and Latvia (down by 18 million euros). There were decreased imports of mechanical appliances (incl. shovels, excavators) and miscellaneous manufactured articles (incl. furniture) from the United Kingdom, and decreased imports of mineral products (incl. motor spirits and electric energy) from Latvia. Imports from Russia increased the most (up by 24 million euros), due to bigger imports of mineral products (incl. heavy oil) and metals and products thereof (incl. flat-rolled products).

Read more from Statistics Estonia

In April foreign trade decreased

According to Statistics Estonia, in April 2014, exports of goods decreased by 5% and imports by 4% at current prices compared to April of the previous year. The decrease in exports was mostly influenced by a fall in the trade of electrical equipment.

In April, exports from Estonia amounted to 1 billion euros and imports to Estonia to 1.2 billion euros at current prices. The trade deficit was 143 million euros and it increased by 11 million euros compared to April 2013.

The biggest share in Estonia’s exports was held by electrical equipment (a fifth of Estonia’s total exports), followed by mineral products (11%), agricultural products and food preparations (10%) and wood and products thereof (10%). A significant decrease occurred in the exports of electrical equipment (down by 30 million euros) and raw materials and products of chemical industry (down by 21 million euros. At the same time, there was an increase in the exports of mineral products and metals and products thereof (both up by 7 million euros).

In April, the main commodities imported were electrical equipment (17% of Estonia’s total imports), mineral products (12%) and agricultural products and food preparations (12%). The biggest decrease occurred in the imports of mineral products (down by 21 million euros) and mechanical appliances (down by 17 million euros). At the same time, the imports of agricultural products and food preparations increased (up by 7 million euros).

The top destination country of Estonia’s exports was Sweden (18% of Estonia’s total exports), followed by Finland (16%) and Latvia (11%). Electrical equipment and wood and products thereof were the main commodities exported to Sweden; electrical equipment and agricultural products and food preparations were the main commodities exported to Finland; and mineral products and agricultural products and food preparations were the main commodities exported to Latvia. The biggest decrease occurred in exports to Lithuania (down by 18 million euros) and to Russia (down by 10 million euros). Exports to Lithuania decreased due to reduced exports of mineral products (incl. electric energy) and railway wagons. At the same time, exports to Belgium and Latvia increased due to bigger exports of mineral products.

The main countries of consignment were Finland (16% of Estonia’s total imports), Germany (11%) and Sweden (10%). The main commodities imported were mineral products and electrical equipment (from Finland), mechanical appliances and electrical equipment (from Germany) and electrical and transport equipment (from Sweden). There was a decrease in imports from Sweden (down by 20 million euros), Latvia (down by 16 million euros) and Russia (down by 9 million euros). There were decreased imports of electrical equipment (incl. electronics equipment) and measuring and checking instruments from Sweden, and decreased imports of mineral products (incl. motor spirits and electric energy) from Latvia. Imports from Finland increased the most (up by 16%), due to bigger imports of mineral products (incl. motor spirits and electric energy).

There was a decrease in exports to the CIS countries, with exports to Russia, Kazakhstan and Ukraine falling the most. There were decreased exports of mineral products (incl. lubricating oils) and medical instruments and apparatus to Russia; decreased exports of mechanical appliances (incl. shovels, excavators) and transport equipment (incl. tractors) to Kazakhstan; and decreased exports of raw materials and products of chemical industry (incl. fertilisers) and mechanical appliances (incl. domestic appliances) to Ukraine. There was a decrease in imports of mineral products (incl. natural gas and gas oils) from Russia and Belarus, and imports of railway wagons from Ukraine.

In April compared to March 2014, exports stayed on the same level and imports decreased 1%.

Read more from Statistics Estonia

Free trade and association agreement with Georgia and Moldova

The government approved the European Union’s free trade and association agreement with Georgia and Moldova today, having approved a similar pact with Ukraine earlier.

Foreign Minister Urmas Paet said the aim of the association agreement is to accelarate closer economic and political ties between the EU and Ukraine, Georgia and Moldova. The agreement gives the countries gradual access to EU’s internal market, the Foreign Ministry said in a press release.

The aim of the agreement is the eventual abolition of customs duties between the EU and the three countries, as well as a close political partnership focused on human rights, democracy, rule of law, sustainable development, conflict prevention and good governance, Paet said

The association and free trade agreement is also the basis for reforms in Ukraine, Georgia and Moldova. Talks over the agreement with Georgia and Moldova began in 2010 and the association agreements were initialled in November at the Vilnius summit.

The daily Eesti Päevaleht reported in late May that the Georgian government is experiencing pressure from Russia in relation to the signing, with hints at possible trade repercussions, and the issue could cause a rift in the coalition there.

The agreement is scheduled to be signed at the European Council on June 27.

The refusal of Ukraine’s then-president Viktor Yanukovych to sign the agreement in November launched the series of protests and power change, followed by the annexation of Crimea by Russia and the ongoing crisis in the eastern part of the country.

The agreement is currently awaiting signing and Paet said Estonia hopes it will be signed in late June, as the presidential elections in Ukraine showed the country’s wish to align itself with Europe.

Source: ERR News

Estonian businessman buys Finnish textile factories

Swedish-born Estonian businessman Peter Hunt, who owns the Wendre textile company, has branched out to Finland, buying one of the nation’s leading textile manufacturers, Finlayson.

The deal involves factories in Finland and Russia, stores in the Baltics and Russia and the Familon trademark, while the Finlayson shops in Finland will remain in the hands of the previous owner of Finlayson.

Read more from ERR News

Economic growth slips – what next?

As the economy saw negative growth in the first quarter, it becomes important to ask what the consequences may be and what we should consider for the future. How much of the fall is temporary or cyclical, and how much of it is long-term or structural?

The disappearance of the impact from temporary factors might make growth in the second quarter seem quite fast in quarterly terms but there is no sense in hoping that structural factors like slow growth in trading partners, problems with competitiveness or a decline in the transport sector will vanish quickly. For this reason year-on-year growth will remain quite modest in the short term. There may be an effect from the conflict in Ukraine in the second quarter, though the data do not yet indicate that this is the case. The expectations of companies were lower in March, but there was no decline in orders.

Growth in exports will not catch fire for some time

The slow growth rate was partly due to expectations of weakening demand in foreign markets. Although the situation has generally improved in Europe and the United States, economic growth in Estonia’s trading partners remains lower than had been estimated. The updated IMF forecasts for Estonia’s trading partners suggest that growth in external demand will be almost two percentage points less than was predicted in the autumn. This is mainly because of worse forecasts for Finland and Russia. A majority of Estonian manufacturing companies also consider weak demand to be the biggest obstacle to growth.

Not only is demand weak in foreign markets, but competition there has tightened, and although Estonia still has relatively cheap labour, productivity is increasing abroad. The recent rapid growth in wages has not made life easier for Estonian exporters. A survey of competitiveness in manufacturing companies carried out by the European Commission shows that there was a fall in the first and second quarters in the proportion of companies who believed their competitiveness in foreign markets had increased. It is difficult to reverse rises in payroll costs and so it may be assumed that higher production costs may affect export growth for some time to come.

Estonian exporters may also be held back by an appreciation of the euro, as the share of Estonian trade that is outside the euro area is larger than that of other euro area countries. A strengthening of the euro will restrict the competitiveness of companies exporting outside the euro area.

Domestic demand is behind the recent weakness

Export growth must have been quite strong in quarterly comparison for the fall to have been as small against the first quarter of last year as Statistics Estonia showed in their comment on GDP. Moreover, manufacturing industry, which is the main source of exports, has grown quite stably in recent quarters, even though it has declined in quarterly comparison in the neighbouring countries, even in Latvia and Lithuania. The flash estimate for the balance of payments also indicates that exports of services were strong in the first quarter despite the weakness of the transport industry. If domestic demand were to prove responsible for the whole of the quarterly economic decline, it would have to have dropped sharply.

Investments may be behind the fall in domestic demand from the fourth quarter as investments are a very volatile component of GDP that can grow by 10% in one quarter and fall by the same amount in the next. The dynamics of investment reveal a large impact from one-off transactions and the first quarter may have witnessed a temporary drop in investment, which will pass in the second quarter.

However, some of the fall in investment is certainly structural in nature. Reductions in European Union funds and money from sales of emissions allowances have led to a reduction in general government investment, and private sector orders have been unable to pick up the slack quickly.

The warm weather effect will pass in the second quarter

Warm weather and an early spring may have lowered annual GDP growth in the first quarter by as much as one percentage point due to lower energy production. The reason for this bad result was not only the warm weather this year, but also the cold temperatures last year which meant that more energy was produced than normal. On top of the fall in demand caused by the warm weather, energy production may also have been pushed down by the new undersea cable between Estonia and Finland, which has made it easier to import electricity from the Nordic countries. When prices for electricity fall in the Nordic countries it becomes more profitable to import electricity from there, meaning that Estonian electricity production is smaller. The disappearance of the weather effect could give a significant boost to growth in the second quarter.

The effect of the weather on GDP is quite large in Estonia as the power stations use locally-produced oil shale as fuel, and if electricity production falls, it is no longer reasonable to mine so much. In contrast, Latvian power stations use a lot of Russian gas, meaning that the local value added in energy is smaller.

The effect of warm spring weather in neighbouring countries can be quite different from the effect in Estonia as warm weather in early spring increases the hydro-energy production capacity in some of Estonia’s neighbours. Hydro-energy, with high local value added, replaces the output of power stations burning fuels.

Energy alone cannot explain all of the decline and the warm weather obviously had a positive impact in some industries. March last year was very cold, and this had a restrictive effect on the construction industry, but there was no such negative effect this year and construction may have grown faster, all other things being equal.

Indications of a structural economic decline

The value added of transport and warehousing has been in decline in Estonia for some time, and as this is a structural effect, it is not expected that it will return to earlier levels any time soon. There was a sharp fall in rail transport in Estonia in 2007 and it has remained low since then and even fallen slightly further. At the start of 2013 a temporary improvement was noted, but it faded away during the year. The reduction in transit has been much remarked in the transport and warehousing industries. As a large part of this industry operates the domestic transport of goods and passengers, the question inevitably arises of how long it can continue to exercise a negative influence over the economy.

Trends in the construction industry are in contradictory directions, like the trends in investment. Pushing one way, the reduction in European Union funds and income from sales of emissions allowances have led to a drop in general government investment that will not recover soon, but driving the other way is a gradual replacement of government orders by orders from the private sector. This is reflected in the results of the different branches of the construction industry. There has been a sharp drop in mining for filling materials used in road-building, like sand, gravel and crushed stone, but there has been strong growth in the production of materials for the building industry.

The real estate business also contributed to the decline in the first quarter, but as a majority of the value added in real estate comes from rent, which is largely a book value, the significant fall may only be an issue of accounting methodologies, and so the effect will probably disappear over the long term. Sizes of buildings and home ownership, or imputed rent, do not change much overnight.

It should also be remembered that the flash estimate for GDP largely backed up the weak economic figures for January and February, but several figures were looking much stronger again in March. Statistics Estonia uses a limited dataset for the flash estimate, meaning that the figures may be revised in future, and experience shows that this can happen to quite a large degree. In the first quarter of last year the flash estimate showed a quarterly decline in the economy of around 1%, but this has been revised to 0.2% by now.

Published date:
19.05.2014
Published in:
Postimees
Source: Bank of Estonia
Author: Kaspar Oja, Economist at Eesti Pank and doctoral student at the University of Tartu

Economic relations with Russia come with additional dangers

Deputy head of the Internal Security Service (ISS) Eerik Heldna said that in dealing with Russia, it is impossible to distinguish between state powers, secret services and organized crime.

“The biggest problem we, as a security service see with our eastern neighbor is that not one sector which is important to our transit sector, infrastructure and energy above all, have been built up according to free market rules,” said Heldna on Wednesday.

He said many people behind those Russian companies (trading with Estonia) are connected to security organizations and organized crime. “It is a symbiosis. They use each other for protecting their interests,” Heldna said.

The biggest danger is the uncertainty behind the business partner’s motivation, he said, adding that it is never clear if any deal is just economic or are there more sinister reasons that will come back to bite you.

Heldna said not all economic relations with Russia are bad or dangerous, and Estonia’s geographic location must be used to the nation’s advantage, but that uncertainty is an additional factor.

Source: ERR via Estonian Review

Increased foreign trade deficit contributed to the GDP decline the most

According to the flash estimates, GDP decreased by 1.9% yoy and by 1.2% qoq ( qoq seasonally and working day adjusted) in the 1Q this year. Although we estimated some decrease in GDP based on less exports and widening foreign trade deficit, such fall was below our expectations. Last time GDP decreased 4 years ago, in the 1Q of 2010 when Estonia was on the way to exit from recession. 

Increase in foreign trade deficit contributed to the decrease in GDP the most. Exports of goods decreased by 1.8%, but imports increased by 1.2%. Besides weak foreign demand, one-off large transaction with ferries in January last year raised the comparison base and contributed considerably to the decrease in exports. Without this transaction GDP decrease in the first quarter this year should have been only marginal. 

By economic activities decrease in transport and energy sector value added contributed the most to the GDP decline. Transport sector is affected negatively by the decrease in transit trade. According to our estimates, transport sector continues to contribute negatively to the economic growth this year. Decrease in energy sector value added comes from less consumption and production of energy due to warmer weather than usually and increased substitution of electricity produced in Estonia with imported electricity. Construction sector which depends considerably on public orders and foreign financing decreased as well. According to our estimates construction sector will stay weak this year, as we do not expect improvement of the above mentioned sources of financing shortly. Growth of manufacturing value added decelerated in the last quarter. Growth of manufacturing is inhibited by decrease in export sales due to still weak foreign demand. 

Domestic demand was robust. According to our estimates, real wages continued to grow fast in the first quarter, contributing to the strong growth of private consumption, as well as retail trade. Increase in investments wasn’t broad-based, having contribution only from few economic activities. However, based on lower comparison base in the first quarter last year, we expect that investments had moderate growth in the beginning of this year.

Continually weak foreign demand will not support substantial improvement in export growth in the second quarter. However, the disappearance of the impact from the higher comparison base of exports in last year should help to bring Estonian economy out of recession. According to our forecast foreign demand will improve modestly towards the end 

Source: Swedbank

In March foreign trade grew

According to Statistics Estonia, in March 2014, exports of goods increased by 1% and imports by 4% at current prices compared to March of the previous year. Foreign trade had declined for nine consecutive months compared to the same month of the previous year, but in March foreign trade increased.

In March, exports from Estonia amounted to 1 billion euros and imports to Estonia to 1.2 billion euros at current prices. The trade deficit was 157 million euros and it increased compared to March 2013.

The biggest share in Estonia’s exports was held by electrical equipment (a fifth of Estonia’s total exports), followed by mineral products (12%), agricultural products and food preparations (10%) and wood and products thereof (10%). A significant increase occurred in the exports of agricultural products and food preparations (up by 15 million euros), mineral products (up by 10 million euros) and wood and products thereof (up by 10 million euros). At the same time, there was a decrease in exports of raw materials and products of chemical industry (down by 37%) and metals and products thereof (down by 13%).

In March, the main commodities imported were electrical equipment (17% of Estonia’s total imports), mineral products (13%) and agricultural products and food preparations (10%). The biggest increased occurred in the imports of transport equipment (up by 15 million euros) and articles of plastics and rubber (up by 9 million euros). At the same time, the imports of electrical equipment and raw materials and products of chemical industry decreased (by 5% and 4%, respectively).

The top destination country of Estonia’s exports was Sweden (17% of Estonia’s total exports), followed by Finland (15%) and Russia (11%). Electrical equipment and wood and products thereof were the main commodities exported to Sweden; electrical equipment and miscellaneous manufactured articles (incl. furniture and prefabricated houses) were the main commodities exported to Finland; and mechanical appliances were the main commodity exported to Russia. The biggest growth occurred in exports to USA (up by 2.2 times or 28 million euros) and to Russia and Belgium (up by 13 and 12 million euros, respectively). Exports to USA increased due to larger dispatches of mineral products (incl. motor spirits, fuel oils); exports to Russia were boosted by exports of mechanical appliances and agricultural products and food preparations; exports to Belgium were increased by exports of mineral products (incl. oil shale). At the same time, exports to Latvia and to Lithuania decreased due to smaller dispatches of raw materials and products of chemical industry (to Latvia) and mineral products (to Lithuania).

The main countries of consignment were Finland (15% of Estonia’s total imports), Germany (11%) and Sweden (11%). The main commodities imported were mineral products (incl. motor spirits) and electrical equipment (from Finland), mechanical appliances and transport equipment (from Germany) and electrical and transport equipment (from Sweden). There was an increase in imports from Germany (up by 17 million euros), Finland (up by 15 million euros) and Russia (up by 11 million euros). There were increased imports of mineral products (incl. fuel and lubricating oils) and mechanical appliances from Germany, and increased imports of mineral products (incl. motor spirits) from Finland. Imports of mineral products (incl. oils and fuel oils) from Russia also grew. At the same time, imports from China and Latvia decreased.

In the 1st quarter of 2014, exports decreased by 8% and imports by 4% compared to the same period of 2013. The trade deficit in the 1st quarter was 362 million euros (262 million euros in the same period of 2013).

Compared to March 2013, export and import prices decreased by 3%.

Read more from Statistics Estonia

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