- As investment activity remained quiet, savings continued to increase faster than debt liabilities
- Around one billion euros more was invested abroad in 2015 than was taken in from there
- Domestic borrowing by Estonian companies increased while their borrowing from abroad decreased
- The indebtedness of the Estonian private sector is around the international average level, while general government indebtedness is small
The saving of Estonian households, companies and general government in the fourth quarter of last year and in the year as a whole were more than their investments, and so the Estonian economy as a whole was a net lender to the rest of the world. This means that as in the past six years, more funds were invested abroad than were taken in from there. The net outflow of financial assets became faster in 2015 and reached around one billion euros, or 5% of GDP.
Weak investment activity meant that corporate debt liabilities grew only a little. Debt liabilities increased by less than 1% over the whole year. Liabilities from Estonia increased by around 3% and foreign liabilities decreased by 6%. The decrease was mainly because companies reduced their short-term intra-group loan liabilities. Despite lower sales revenues, reduced investment in fixed assets has increased the liquid assets of companies. The deposits held both in banks operating in Estonia and abroad increased in 2015 by around 12%.
The income and savings of households are still increasing faster than their debt liabilities. The rate of growth in debt liabilities increased on the back of loans for real estate investment and car leases to 5% by the end of last year, and loan liabilities stood at 8.2 billion euros. The relatively rapid growth in incomes and the high savings rate helped the cash and deposits of households to increase by around 9% over the year to 6.7 billion euros. Despite the rapid growth, the financial savings of Estonian households in relation to incomes are still below the European Union average.
The European Commission treats the indebtedness of companies and households in the private sector and the general government, or the debt-to-GDP ratio, as an indicator that can reveal potential imbalances in an economy. The threshold where there is a risk of imbalance is set at 160% for the private sector1 and 60% for the general government. The indebtedness of the Estonian private sector declined slightly in 2015 to 128% at the end of the year, which is around the average level for the European Union. The indebtedness of Estonian companies and households is relatively large compared to that in countries with a similar income level. The general government debt level also shrank slightly last year, and it stood at 9.7% of GDP at the end of the year, which is still the lowest figure in the European Union.
1 The threshold is 160% for unconsolidated data and 133% for consolidated data. The consolidated debt level of the Estonian private sector was put at 116% of GDP at the end of 2014 by Statistics Estonia.
Source: Bank of Estonia
Author: Taavi Raudsaar, Economist at Eesti Pank