The current account surplus was in surplus in May

The flash estimate1 put the Estonian current account at 51 million euros in surplus in May 2016. The surplus on the goods and services account was 64 million euros, which was 51 million euros less than at the same time a year earlier. As goods exports were up 5% over the year and imports were up 10%, the faster growth in imports led the deficit in goods to widen to 105 million euros. The positive balance for services was close to its level of last year at 168 million euros. Exports of services were brought down by transport services and boosted by other services, while imports of transport services increased and those of other services declined. The net outflow of investment income and other income in the primary and secondary income accounts was 12 million euros in May, which is 4 million euros more than a year earlier. This was primarily because less was used in investment and other support from the European Union funds than a year previously.

The sum total of the current and capital accounts was 64 million euros in May. This means that the Estonian economy was a net lender to the rest of the world, so the country as a whole invested more resources abroad than it received from there.

See the graph on Bank of Estonia website

The number of tourists increased in May

According to Statistics Estonia, 280,000 domestic and foreign tourists stayed in accommodation establishments in May 2016, which was 4% more than in May 2015. The number of both domestic and foreign tourists increased.

191,000 foreign tourists and 89,000 domestic tourists used the services of accommodation establishments. Compared to May of the previous year, the number of both domestic and foreign tourists increased by 4%. 59% of the foreign tourists having used the services of accommodation establishments came from neighbouring countries Finland, Latvia and Russia. Compared to May of the previous year, 4% more tourists from Finland stayed in accommodation establishments, while the number of tourists from Latvia and Russia decreased. There was also an increase in the number of tourists arriving from several other European countries – Germany, Sweden, Lithuania, Poland, etc. Among tourists using the services of accommodation establishments, the number of tourists arriving from Asian countries continues to increase. Compared to May 2015, 10% more tourists arrived from Japan and 8% more tourists arrived from China. 30% of the foreign tourists having used accommodation services stayed in accommodation establishments located outside of Tallinn, 30% of them stayed in the accommodation establishments of Pärnu county, 20% in Tartu county and 12% in Ida-Viru county.

32% of the clients of accommodation establishments were domestic tourists, of whom 57% were on a holiday trip and 29% on a business trip. 27% of the domestic tourists having used accommodation services stayed in the accommodation establishments of Harju county, 13% in Pärnu county, 12% in Tartu county and 10% in Ida-Viru county. In most counties, the number of domestic tourists staying in accommodation establishments increased compared to May 2015.

In May, 1,108 accommodation establishments offered services for tourists. 20,000 rooms and 46,000 beds (800 beds more than in May 2015) were available for tourists. 46% of the rooms and 36% of the beds were occupied. The average cost of a guest night was 38 euros or 2 euros more than in May a year earlier. The average cost of a guest night was 44 euros in Harju county, 32 euros in Tartu county, 31 euros in Pärnu county and 30 euros in Ida-Viru county.

Read more from Statistics Estonia

In May, the trade increased‏

According to Statistics Estonia, in May 2016, the exports of goods increased by 4% and imports by 11% compared to May of the previous year. The imports of goods increased more than the exports of goods, resulting in an increase in the trade deficit.

In May, exports from Estonia amounted to 1.0 billion euros and imports to Estonia to 1.2 billion euros at current prices. The trade deficit was 159 million euros (in May 2015, it was 83 million euros) and that was increased the most by trade with Germany and the Netherlands.

The top destination country of Estonia’s exports in May was Sweden (21% of Estonia’s total exports), followed by Finland (16%) and Latvia (10%). There was an increase in exports to Sweden, Togo, Mexico and Finland, with an increase in the exports of electrical equipment, articles of wood and prefabricated wood buildings to Sweden, motor spirits to Togo, communication equipment to Mexico and mechanical appliances and prefabricated wood buildings to Finland. The biggest decrease occurred in exports to Latvia.

The biggest share in Estonia’s exports in May was held by electrical equipment, followed by wood and articles of wood and miscellaneous manufactured articles. The same chapters significantly influenced the increase in exports. In the chapter of electrical equipment, there was an increase in the exports of communication equipment and electrical transformers; in the section of miscellaneous manufactured articles, there was an increase in the exports of pillows and blankets, and prefabricated wood buildings; and in the section of wood and articles of wood, there was an increase in woodworking articles. There was a fall in the exports of mineral products, and agricultural products and food preparations.

The share of goods of Estonian origin in total exports was 73% in May. The exports of goods of Estonian origin increased the most in trade with Sweden (up by 22 million euros), Togo (up by 12 million euros), Mexico (up 9 by million euros) and Belgium (up by 8 million euros). The share of goods of Estonian origin was the largest in the exports of wood and articles of wood (98%), paper and articles thereof (92%) and miscellaneous manufactured articles (89%).

The main countries of consignment in May were Finland (13% of Estonia’s total imports), Germany (12%), Lithuania and Latvia (both 9%). Compared to May 2015, the biggest increase occurred in imports from Germany, the Netherlands and Canada. There was an increase in the import of mechanical appliances from Germany, electrical equipment from the Netherlands and transport equipment from Canada, compared to May 2015. At the same time, the greatest decrease occurred in imports from Poland.

In May, the main commodities imported were electrical equipment, transport equipment and mechanical appliances. For the second month in a row, imports increased in almost all commodity sections, except in the imports of mineral products. The rise in imports was influenced the most by increased imports of transport equipment (up by 24 million euros), mechanical appliances and electrical equipment (both up by 18 million euros).

In May compared to April, the exports of goods decreased 5% and imports 4%.Diagram: Estonia’s foreign trade by month, 2014–2016

Read more from: Statistics Estonia

Consumer prices continued to decline in the first half of 2016

Consumer prices continued to decline in the first half of 2016

• Cheaper energy and food behind the decline in prices
• Price growth is expected to be flat in 2016

In June 2016, consumer prices decreased by 0.4%, year on year, in Estonia. Goods were 0.6% and services 0.1% cheaper compared to one year ago. Consumer prices declined due to lower energy and food prices.

Motor fuels were 10% and heat energy 9% cheaper than in June 2015. In global markets, crude oil prices were around 20% lower than one year ago in EUR terms. In Estonia, in June, food prices declined by 1%. Abundant supply and favourable weather conditions have pushed down the prices of vegetables, milk, and meat products.

According to our current estimates, consumer prices are expected to be flat in 2016. Deflation should end during the second half of the year due to higher prices of commodities, especially oil, and an increase in excise tax rates of motor fuels, alcohol beverages, and tobacco.

Source: Swedbank

Estonian housing market risks diluted

  • The surge in supply has almost halted price growth
  • Construction sector investments low
  • Real estate prices relative to income stay below 12-year average

Price – it is all about demand and supply

In the first quarter of 2016, price growth of apartments in Estonia almost came to a halt due to increased supply. Even though 6,000 dwellings have been added in Tallinn in the last five years, the ratio of individuals per dwelling has been on the rise. In Tartu, the second-biggest city in Estonia, the situation is less tense. Price pressure has been fiercer in Tallinn and the difference between price per square meter in Tallinn and Tartu has increased from 50 to 350 euros. In the second quarter of 2016, annual price growth accelerated to 1.8%, a notch up from first quarter result of 0.7%, but in general, the market has stabilised, whereas the median price has a clear trend downwards. Due to increased supply and sale adverts of newer dwellings, competition has pushed down the prices of newer apartments, making them more attractive. As interest rates are low and newer houses have lower maintenance costs, the extra a customer has to pay to cover the price difference with a loan has decreased to a marginal value.

Low investments in the construction sector 

The drop in the prices of new apartments is good news for potential clients, whose income has grown substantially and now exceeds real estate price growth. Wages have grown in the construction sector as well. This, combined with lower sales prices, has hit investments of construction companies.

Is the price of real estate too high? 

Apartment prices are closing in to the level of the 2007 real estate boom in nominal terms, —they are only 12% lower on average. The situation is not even close to the conditions of the 2007 real estate boom when prices are compared to income. Prices relative to income have recovered from the bust that followed the boom and stay below the 12-year average level. In fact, they even dropped in the first quarter of 2016. Whereas in 2007 the average worker needed to pay 2.5 times the average net salary to buy one square meter of apartment space, he/she now needs only 1.7 average net wages in a given region.

We expect that this year the prices of real estate will stay relatively stable. Low interest rates continue to support demand for dwellings and lending growth. The amount of started construction projects should keep up the necessary supply of new dwellings.

Source: Swedbank

The annual growth of the Dwelling Price Index was 2 pct

According to Statistics Estonia, in the 1st quarter of 2016, the Dwelling Price Index changed by -0.1% compared to the 4th quarter of 2015 and by 2% compared to the 1st quarter of 2015.

Compared to the previous quarter, the prices of apartments decreased by 0.2% and the prices of houses remained on the same level.

Compared to the 4th quarter of 2015, the prices of apartments decreased by 1.5% in Tallinn and increased by 1.8% in areas bordering Tallinn with Tartu and Pärnu cities and by 3.2% in the rest of Estonia.

Compared to the 1st quarter of 2015, the prices of apartments have increased by 3.1% and the prices of houses decreased by 0.5%. Compared to the 1st quarter of the previous year, the prices of apartments remained on the same level in Tallinn, but increased by 9.9% in areas bordering Tallinn with Tartu and Pärnu cities, and by 6.8% in the rest of Estonia.

The previous time that the yearly change in the Dwelling Price Index was smaller than 2% was in the 1st quarter of 2010 when it was -5.5%.

The Dwelling Price Index expresses the changes in the transaction square metre prices of dwellings purchased by households. The Dwelling Price Indices have been compiled for apartments and houses (including detached, semi-detached and terraced houses).

In the 1st quarter of 2016, the Owner-Occupied Housing Price Index changed by -1.1% compared to the 4th quarter of 2015 and by -3.5% compared to the 1st quarter of 2015.

The Owner-Occupied Housing Price Index expresses the changes in the prices of the acquisition of dwellings new to the household sector and other goods and services that households purchase in their role as owner-occupiers. The index consists of four parts: the acquisition of dwellings, other services related to the acquisition of dwellings, major repairs and maintenance, and insurance connected with dwellings.

The Owner-Occupied Housing Price Index is published on the base 2010 = 100. The time series starts from the 1st quarter of 2005; major repairs and maintenance are included from the 1st quarter of 2007 and insurance connected with dwellings is included from the 1st quarter of 2012.

Source: Statistics Estonia

Estonian investments in Q1 2016

The financial account of the balance of payments shows that investment in Estonia was 126 million euros larger in the first quarter of 2016 than investment abroad from Estonia. The net inflow of capital was caused by direct investment in non-financial corporations and foreign aid from the European Union to the general government. The Estonian economy was last a net borrower in the first quarter of 2014.

  • The net inflow of direct investment was 127 million euros, most of which came as growth in the intra-group debt liabilities of non-financial companies. The inflow of equity investment was smaller than usual, as the banks paid out dividends in the first quarter.
  • The net outflow of portfolio investment was 517 million euros, and Eesti Pank invested the most in foreign countries, as before. The central bank invested 400 million euros in foreign securities, and other sectors invested 87 million euros. Since 2015, Eesti Pank’s investments in foreign securities have increased by 1.8 billion euros as part of the asset purchase programmes of the European central banks.
  • The net inflow of other investment totalled 563 million euros, of which 114 million euros was money received from the European Union’s Structural Funds. The purchases of securities by Eesti Pank within the asset purchase programme also had a notable impact on the net inflow, as did the settlements transferred by the other sectors to the rest of the world, which reduced the other investment assets of the central bank by 1.2 billion euros1.

The net international investment position2 at the end of the first quarter of 2016 showed that the external liabilities of Estonian residents exceeded their external assets by 8.5 billion euros, or 41% of GDP. As external assets decreased by more than external liabilities did during the first quarter, the negative net investment position increased by 254 million euros. Of this, 151 million euros was transactions with financial assets and liabilities, 39 million euros was price changes, and 64 million euros was from changes in exchange rates (see the International Investment Position).

Statistics for the external debt show that at the end of the first quarter, the debt assets of Estonian residents from non-residents were 1.8 billion euros larger than their debt liabilities3. Debt assets were 0.5 billion euros less than in the previous quarter and stood at 75% of all external assets at the end of the quarter, with a value of 20.8 billion euros, or 101% of GDP. The volume of debt liabilities decreased by 0.2 billion euros over the quarter to stand at 19 billion euros, or 92% of GDP, which is 52% of all external liabilities (seeExternal Debt).

1 The inflow and outflow of capital for the central bank is affected by the activities of other sectors in which payments made or received move through credit institutions as settlements between central banks of the euro area through TARGET accounts. If the balance of Eesti Pank’s account in the TARGET system is reduced by settlements between euro area central banks, it means that money is going from Eesti Pank to the other central banks and the assets of Eesti Pank are equally decreasing. In the opposite case, money flows in and the assets of the central bank increase.

Securities bought within the asset purchase programme increase the portfolio investment assets of the central bank but reduce the other investment assets by the same amount because of the settlements transferred out of Estonia, so net external financing is not affected.

2 The international investment position is a consolidated balance sheet of the external assets and liabilities of all the institutional sectors of a country as at the balance sheet date at market prices.

3 Debt assets and debt liabilities are components of the international investment position that have a repayment obligation. The external debt does not include direct, portfolio or other investment in equity capital, reinvested earnings, financial derivatives, or the gold of the central bank reserves. The external debt does include the debt assets and liabilities between companies in a direct investment relationship.

The debt assets and debt liabilities position

 

See a better graph on Bank of Estonia website

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