General government balance back in surplus

According to the preliminary data of Statistics Estonia, in 2014, the Estonian general government surplus was 0.6% and the gross debt level was 10.6% of the gross domestic product.

At the end of 2014, the total revenues of the general government exceeded the expenditures by 112.7 million euros*, accounted as the Maastricht deficit criteria. Both the balance of the central government and those of local governments improved. By the end of 2014, the surplus of revenues of the central government sub-sector was 55 million euros*. The deficit of the local government sector decreased over the year, amounting to a deficit of only 4.5 million euros at the end of 2014. The budget surplus of social security funds was 62.2 million euros, remaining on the same level as in 2013.

The consolidated debt of the general government (Maastricht debt) amounted to 2.1 billion euros by the end of 2014, having risen 10% compared to 2013. The local governments as well as the central government contributed to the growth of the debt level. The loan liabilities of the central government rose by 11%, while the volume of long-term securities issued by the public-legal institutions and foundations belonging to the central government decreased by 28%. The share of foreign debt in the central government’s loan liabilities was nearly 84%.

The Estonian involvement in the European temporary rescue mechanism, EFSF (European Financial Stability Facility) increased by 26.4 million euros in 2014. At the end of 2014, the liabilities towards the EFSF totalled 485 million euros, 81% of which went for the participation in the rescue package for Greece, 12% for Portugal and 8% for Ireland.

The overall debt level of the local governments grew by 12% compared to 2013 and nearly a quarter of the loans were financed by foreign capital. While the volume of long-term loans increased 13% over the year, the volume of short-term loans decreased nearly three times. The volume of the securities other than shares increased 8%. As at the end of 2014, social security funds did not contribute to the debt of the general government sector.Diagram: Surplus/deficit and debt level of the general government in Estonia

* Unlike earlier years, the results of the economic activities of central stockholding agencies and deposit guarantee funds are now added as estimations to the central government balance according to Eurostat’s decisions on accounting harmonisation. The corresponding recalculations will be published in the Statistical Database of Statistics Estonia together with the results of regular revisions in September 2015.

In Estonia the general government sector comprises three sub-sectors: 1) central government (state budget units and extra-budgetary funds, foundations, legal persons in public law); 2) local governments (city and rural municipality governments with their subsidiary units, foundations); 3) social security funds (Estonian Health Insurance Fund, Estonian Unemployment Insurance Fund).

Source: Statistics Estonia

The carriage of passengers and goods declined in 2014

According to Statistics Estonia, in 2014, the number of passengers served by Estonian transport enterprises decreased by 2% and the freight volume in tonnes decreased by 5% compared to the previous year. Passenger traffic volume increased by 6% in passenger-kilometres, but freight turnover fell 15% in tonne-kilometres.

In 2014, the number of passengers carried by Estonian transport enterprises amounted to 211 million. 92.7% of these passengers were carried by road, 4.1% by sea, 2.8% by rail and 0.4% by air.

3% fewer passengers used road transport, compared to 2013. There were 195.6 million passengers in total and 85% of them, i.e. about 167 million passengers, used urban transport (i.e. buses, trams and trolleybuses). The number of passengers using county lines was about 17 million (up by 2% compared to 2013). National non-scheduled transport was used by 5 million passengers (up by one third). The number of passengers was 4.4 million on domestic highway lines (down by 2%) and 808,700 on international lines (up by 10%). In 2014, the passenger traffic volume of road transport enterprises decreased by 2% and was 2.6 billion passenger-kilometres.

In 2014, Estonian sea transport enterprises carried 8.7 million passengers, which is 1% less than in 2013. The number of passengers carried was 2.2 million in domestic sea traffic (up by 4%) and 6.5 million in international sea traffic (down by 3%). The passenger traffic volume of sea transport enterprises decreased by 4% and was nearly 1.2 billion passenger-kilometres in 2014.

Last year, with the arrival of new trains, the number of passengers using rail transport increased significantly. Around 5.9 million passengers were carried by rail, which is 41% more than in 2013. 5.8 million passengers were carried in domestic rail traffic (up by 43%) and 97,100 passengers were carried in international rail traffic (down by a fifth compared to 2013). The passenger traffic volume of rail transport enterprises increased by 26% and was 281.7 million passenger-kilometres.

In 2014, Estonian air transport enterprises carried 771,300 passengers. This is 1% more than in 2013. 17,800 passengers were carried in domestic air traffic (down by 7%) and 753,500 passengers were carried in international air traffic (up by 2%). The passenger traffic volume of air transport enterprises increased by 29% and was 1.4 billion passenger-kilometres in 2014. Scheduled passenger air transport decreased, but the increase in passenger turnover was due to the growth in charter flights.

In 2014, 75.1 million tonnes of goods were carried by Estonian transport enterprises, of which nearly 50% was carried by road, 48% by rail and 2% by sea.

Despite the overall decrease in goods transport volumes, road transport companies carried nearly 37.2 million tonnes of goods in 2014, which is 12% more than in 2013. 23.6 million tonnes of goods were transported in domestic road traffic and 13.6 million tonnes in international traffic. Freight turnover increased by 7% compared to 2013 and totalled 6.9 billion tonne-kilometres. There was a growth both in domestic transport and in international transport.

In 2014, the amount of goods carried by rail was nearly a fifth smaller than the year before, amounting to 36.3 million tonnes. The year-over-year decrease in freight volume in 2014 was the largest since 2007 and 2008. 20.1 million tonnes of goods were transported in domestic rail traffic and 16.2 million tonnes in international traffic. Freight turnover decreased by a third compared to 2013 and amounted to 3.3 billion tonne-kilometres.

Estonian sea transport enterprises carried 1.6 million tonnes of goods in 2014, which is 17% less than in 2013. The freight turnover in sea transport decreased by more than a half compared to 2013 and amounted to 425 million tonne-kilometres.

Estonian air transport enterprises carried 3,000 tonnes of cargo and the freight turnover was 1.8 million tonne-kilometres in 2014. Compared to 2013, there was 50% more cargo transported and freight turnover increased by 19%. Among the cargo transported by air, the carriage of postal shipments increased.

Carriage of passengers and goods

by transport enterprises, 2014

Passengers, millions Passenger traffic volume, billion pkm Freight, million tonnes Freight turnover, billion tkm
Total 211.0 5.5 75.1 10.6
Road transport 195.6 2.6 37.2 6.9
..urban transport 167.0 0.8 - -
Rail transport 5.9 0.3 36.3 3.3
Sea transport 8.7 1.2 1.6 0.4
Air transport 0.8 1.4 0 0

- magnitude nilThe data of Estonian transport enterprises are collected and published according to the enterprise’s principal activity. The enterprise’s principal activity is determined based on the Estonian Classification of Economic Activities (EMTAK (NACE)): land transport (rail and road), water transport and air transport.

Passenger traffic volume is the volume of work done in the transport of passengers. It is measured in passenger-kilometres (pkm). One passenger-kilometre is the transport of one person across a distance of one kilometre.

Freight turnover is the volume of work done in the transport of goods. It is measured in tonne-kilometres (tkm). One tonne-kilometre is the transport of one tonne of goods across a distance of one kilometre.

 

Source: Statistics Estonia

How satisfied are people with their lives

“Overall, how satisfied are you with your life these days?” people across the European Union (EU) were asked. Life satisfaction represents how a respondent evaluates or appraises his or her life taken as a whole. It has a prominent role as it can be regarded as a key indicator of subjective well-being. On a scale from 0 (“not satisfied at all”) to 10 (“fully satisfied”), nearly 80% of residents aged 16 and over in the EU rated their overall life satisfaction in 2013 at 6 and higher, with an average (mean) satisfaction of 7.1.

In 2013, mean life satisfaction, measured on a scale of 0 to 10, varied significantly between EU Member States. With an overall average of 8.0, inhabitants in Denmark, Finland and Sweden were the most satisfied with their lives in the EU, followed by those in the Netherlands and Austria (both 7.8). At the opposite end of the scale, residents in Bulgaria (4.8) were by far the least satisfied, followed by those in Greece, Cyprus, Hungary and Portugal (all 6.2).

Baltic countries had the same satisfaction rate within 6,5-6,7.

life satisfaction

Read more from here

The current account was in surplus in January

The flash estimate put the Estonian current account at 55 million euros in surplus in January 2015. Exports of both goods and services were up on a year earlier, but import volumes were smaller than in January 2014. The smallest deficit on the goods account in recent years and an increased surplus in services turned the current account balance to surplus.

The total balance of the current and capital accounts was also positive. This means that the Estonian economy was a net lender to the rest of the world at the start of this year, so  all the economic sectors of the economy taken together invested more resources abroad than they received from there.

See more on the Bank of Estonia website

Modest growth of sales expected in 2015

• Profitability stable despite stagnant turnover
• Investment volumes a bit larger outside the energy sector
• Modest growth of sales expected in 2015

Profitability stable despite stagnant turnover
In 2014, enterprises’ turnover and costs in Estonia stayed at the previous year’s level. While the level of total costs did not change, labour costs increased; therefore, the share of personnel expenses to total costs rose from 12% in 2013 to 13% in 2014. Despite no change in turnover, total profits grew by 3%. Profitability, measured as the ratio of total profits to turnover, has been at the same level for three years.

Investment volumes a bit larger outside the energy sector
Business sector investments increased by 2%, excluding the energy sector. Compared with 2013, investments in land, acquisition of buildings, and computers increased. Other investments decreased, with the biggest decline registered in investments in equipment and machinery, due to smaller investment volumes in the energy sector.

Modest growth of sales expected in 2015
The growth of sales and profits will probably remain limited this year. Sentiment indicators have worsened in recent months. Operating capacity in the manufacturing sector hit the seasonal average of recent years in January, but the volume of orders has been declining during the last few months. Exports to Russia have been hit, but the volume of total exports of goods was still growing, at least in January. According to the recent Swedbank survey of Estonia’s manufacturing sector, 64% of polled industrial enterprises planned to increase their turnover (by 3.0%, on average), and 44% of companies expected an increase in their profitability in 2015.

Source: Swedbank

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A book about Estonian currency EEK

This book is different from most similar ones as it tells a story that has finished. It is very rare in monetary and economic policy to find stories with a clear beginning and end, but the story of the Estonian currency board is one such, as it started with a monetary reform on 20 June 1992 and ended on 1 January 2011 when Estonia joined the euro area.

Such a framework provides a unique opportunity to describe a clearly defined stage in the modern history of the economy. Although this book tells the story of Estonia, it also gives a picture of the age as a whole, because although Estonia is small and exceptional in some ways, most of the major events of the last decade of the 20th century and the early years of the 21st appear here in one way or another.

This is particularly true of the main processes of the period in Central and Eastern Europe as the economy changed from a command economy to a market economy. There was, and still is to some extent, a mix of very different economic policy choices. Looking back more than twenty years later we can say that there was no single and only route through these processes and towards the living standards of the ‘old’ member states of the European Union. There were better and worse choices in the short term but no one country from Central and Eastern Europe stood out as much more successful than the others.

This period is made more interesting by its coincidence with changes in the global economy. Globalisation became a torrent, the role of emerging markets increased, financial markets were liberated, and information and communications technology advanced. With the great changes came great crises, in the form of the Great Recession and the subsequent European debt crisis. The changes they caused have not yet ended and they will be considered in greater depth in the future.

This book concentrates on the changes of 1990–2010 looking through the prism of monetary policy, which in Estonia’s case meant the monetary policy based on the fixed exchange rate. As a broader perspective is needed, the book covers the modern history of Estonia’s economy in a wider sense, at least where it concerns the general logic of development, the essential features of economic policy and the main macroeconomic indicators such as GDP growth, inflation and employment or unemployment.

The small size of the country sets its own limits. A country the size of Estonia is not able to have a fully free choice among all the possible doctrines of monetary policy and so this is a study of a small and open economy in transition, where the distinctive feature of Estonia, the currency board arrangement, takes centre stage and the story unfolds in several acts with two crises in the Asian and Russian crisis and the later Great Recession.

Another distinctive feature is that the policy-makers and the people of Estonia travelled a path in twenty years that normally takes many times longer, starting from essentially zero with hyperinflation and an economy collapsing out of the break-up of the Soviet Union, and finally arriving at accession to the European Union and the euro area. This required a new financial system to be built and to evolve, and needed new markets to be created such as the securities market and the credit market. Furthermore, the global crisis required a section of the road to be travelled twice for the pre-crisis level of wealth to be regained, and so it is clear that this was an exciting and challenging time.

Ardo Hansson, Governor of Eesti Pank

Read more from Bank of Estonia website

The external balance improved last year

Growth in exports of goods and services was faster in the final months of last year than in the preceding quarters, though the developments were different for different groups of goods. So whereas exports of dairy products were around 30% smaller in the fourth quarter of last year than in the same quarter of the previous year for example, growth in exports of goods averaged around 3-4%. Growth was positive even though export prices fell by 3.7%. The growth in the export of goods was aided significantly by an increase in net re-exports. Exports of services also grew strongly in the final months of the year, mainly driven by maritime other transport services and construction services. The goods and services account was again in surplus in the last quarter of the year and the current account as a whole also moved into surplus.

The current account deficit in 2013 stood at 1.1% of GDP, but for 2014 as a whole it was very small, shrinking mainly because of increased exports of services. Growth in domestic demand was modest as companies reduced their investment activity for the second consecutive year, which held back growth in imports and so supported balance in the current account.

A current account that is close to balance means that substantial movement of capital in the financial account is not needed, as there is no need for additional funds from abroad to cover investment. The turnover of transactions, or the inflow and outflow of funds, was actually larger than in 2013 though, probably because of transactions made for liquidity management and financial investment. However, the increased inflow and outflow of funds did not significantly affect investment activity in the private sector last year. The Estonian economy was a net lender in 2014, as it had been in 2013 and by a similar amount, and by the end of the year, the net external debt stood at -9% of GDP.

This meant that the external balance of the Estonian economy improved last year in the figures for both the balance of payments and the international investment position.

 

Source: Bank of Estonia

Author: Andres Saarniit, Economist at Eesti Pank

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