Unemployment decreased further

• In Q2, employment up by 1.7%, yoy, and unemployment rate down to 6.5%.
• In 2016, employment is expected to fall a bit.

Estonia’s labour market tightened further in the second quarter, but at a slower space. The annual growth of employment slowed from 2.9% in Q1 to 1.7% in Q2. The number of inactive and unemployed declined compared to last year. The inactivity decreased the most among the retirees and those studying at school or university. Unemployment rate decreased to 6.5% in the second quarter (7.0% in Q2 2014).

The Estonian Unemployment Insurance Fund’s data shows that unemployment has declined at a slower space in recent months. Seasonally adjusted figures show even a slight increase in unemployment in Q2. Unemployment rate has reached a level where an additional decline of the rate is already difficult. There are around 44 000 unemployed in Estonia currently, out of which 11 000 have been looking for a job for more than 2 years. The number of people who have become unemployed recently, has grown. Some sectors, who face weak export demand and low output prices, find it hard to keep up with current wage growth.

Employment will grow this year due to the labour registration obligation, which will push up official employment statistics in the first half of the year. Also, strong consumption supports employment in the services sector. In 2016, employment is expected to fall a bit because of a lower supply and demand of labour. More expensive labour encourages investment in machinery. Some enterprises might decrease the number of employees because of low (export) demand, i.e., agriculture and specific sectors of the manufacturing industry. Unemployment rate is expected to remain low, however, although it might increase marginally next year due to decreasing working-age population and problems in certain sectors.

Source: Swedbank

The fall in exports to Russia reduced GDP growth

The flash estimate from Statistics Estonia shows that the Estonian economy grew by 1.9% over the year to the second quarter, and by 0.8% over the quarter, adjusted seasonally and for the number of working days. The growth in manufacturing output in recent months and figures for exports had indicated that the economy grew more slowly than the flash estimate showed, but the flash estimate indicates that while exports did act as a brake on growth, they did so by less less than the amount added by domestic consumption.

Exports mainly declined because demand in Russia is weak and exports to other markets have not been able to compensate fully for this (see Figure). The index of European economic confidence strengthened again for the second consecutive quarter. However, there are few areas of the Estonian economy that are able to benefit quickly from the improvement in the European economy and increase exports, as traditional target markets for exports by Estonian companies have been faring less well.

Exports to Russia dropped by one third in the second quarter, which reduced GDP growth by around one percentage point. Exports to Russia fell by less than they did in the first quarter, when they halved. Exports to Russia largely consist of products from other countries and so the main impact of the reduction in exports was felt by companies providing intermediation services and transport companies. The rouble has continued to slide in recent weeks, making it likely that Russian demand for imported goods will remain low.

Although manufacturing output declined, the sector still made a positive contribution to GDP growth. This means that the value added of manufacturing industry must have grown, with fewer inputs being used for a similar volume of output. Wood production has boosted output from manufacturing, and has grown relatively stably in recent years. The fall in the price of energy meant that the energy industry and oil production had a negative impact on industrial output in the second quarter.

Although wages and household incomes have started to grow more slowly, retail sales and consumption have continued to grow rapidly. Available data on corporate financial results for the second quarter indicate that major investments were made in the second quarter, but they are likely to have had a one-off impact on economic growth. There is more spare production capacity in most sectors than there was before the economic crisis of 2008, and production can be increased without major investment. Spare capacity shrank during the second quarter however, meaning there was probably an increase in the need for investment in growing sectors.

Source: Bank of Estonia

Author: Kaspar Oja, Economist at Eesti Pank

Deflation continues in Estonia

• Consumer prices dropped further in July
• Cheaper energy prices behind the decline in prices
• Inflation expected at -0.2% in 2015 (-0.1% in 2014)

Consumer prices decreased further in Estonia in July. CPI fell by 0.4%, month on month, and 0.3%, year on year. Consumer prices declined due to lower energy prices. Motor fuels were 12%, electricity 7%, heat energy 4%, and natural gas 20% cheaper than one year ago. On global markets, crude oil price was 38% lower than one year ago in EUR (-50% in USD, yoy).
Due to cheaper energy prices, deflation is expected to continue in the coming months. According to our estimates, CPI is expected to decline by 0.2% in 2015, after a marginal drop of 0.1% in 2014.

Cheaper prices benefit consumers but put additional pressure on producers. After the first six months of this year, producer prices in the industry have declined by 1.7%, year on year. During the same time period, export prices have shrunk by 3.8% and import prices by 3.3%. The decline in prices has been caused by modest demand on world markets, as well as an oversupply of commodities. The large drop in export and import prices in Estonia was caused by cheaper oil prices, which supressed the prices of Estonia’s petroleum products and, to a smaller extent, chemical products.

Source: Swedbank

Private clients make 85 pct of all domestic payments

A daily average of one million cashless payments were made in Estonia in the second quarter of 2015, with a total turnover of 393 million euros. The number of cashless payments was 5% higher compared to the same period a year ago, but the turnover was 8% less. The number of cashless payments has kept increasing over the past ten years, but turnover has been a lot more volatile, since it depends on both the general economic activity and, to a certain extent, the activity of larger individual companies. Private clients make 85% of all domestic payments, but it only makes up 9% of the total turnover of payments. Around one fifth of the cashless payments made in Estonia are settled using the interbank retail payments system STEP2.

A daily average of 116,000 domestic payments were made in the second quarter of 2015 between banks using STEP2, with a total turnover of 144 million euros. The number of payments was up 7% from the same time a year ago, while turnover increased 1% year-on-year. Although the majority of the payments are made within one bank, interbank payments have steadily made up 20-24% of all domestic payments over the past ten years. An average of 12,000 payments a day were made from Estonian banks to other countries using STEP2. Payments were made to 34 countries, with most of them going to Finland and Germany (a total of 31% of all cross-border payments).

TARGET2 express transfers, which transfer money from one bank to another in up to 15 minutes, are also used to send payments to another bank.1 This option is still not very widely used in Estonia: only 100 domestic express transfers per day were made by bank clients in the second quarter.

Private clients tend to use bank cards for purchases more and more. In the second quarter of 2015, private clients made 667,000 card payments every day, which is more than triple the number of card payments made in 2005. The share of card payments among all domestic payments made by private clients was 75% in the second quarter, while ten years ago it was 10% smaller. Private clients are withdrawing cash less and less frequently. Ten years ago, private clients withdrew cash from ATMs an average of 137,000 times a day, but in the second quarter of 2015, that number had dropped to 103,000 (117,000 times a day in the second quarter of 2011 and 108,000 times a day in the same period in 2013).

Among other cashless methods of payment, private clients use internet bank payment orders the most. An average of 109,000 internet bank payment orders per day were made in the second quarter, which is 1.7 times more than ten years ago. The share of internet bank payment orders among domestic payments has decreased, though: from 19% ten years ago to 12% now. In 2005, the third most important cashless method of payment was direct debit (10%). Now, however, e-invoice standing orders make up 6% of all cashless methods of payment. Payments made through a bank link reached 4% in the second quarter, while the share of other cashless methods of payment was 1% or less.

Read more from Bank of Estonia website

Author: Tiina Soosalu, Eesti Pank Payment and Settlement Systems Department

Record amount of wind energy produced in first half year

Extraordinary stability of windy weather in the first half of this year enabled the state-owned energy company Eesti Energia to produce a record amount of 124,466 megawatt-hours of wind energy during the six months, which is enough to meet the yearly consumption needs of more than 40,000 households of average size.

“We are pleased to be able to say that Estonia has reached a stage where it is able to effectively use the wind resource and produce electric energy from it in different places all over the country in an environment friendly manner,” Innar Kaasik, manager for renewable energy and small-scale CHP production at Eesti Energia, said.

Kaasik said the stability of winds this year has allowed to take the maximum out of wind power.

“Had winds taken the shape of storms, Eesti Energia would not have been able to ensure so big an output at its wind farms. It is under these kind of conditions of stable winds that we can fine-tune our equipment to yield the maximum,” Kaasik said.

Kaasik also said good wind conditions and the country’s long coastline alone would not be enough to ensure solid output if the owners of wind farms in Estonia weren’t giving proper service to their equipment.

“Where 2014 was a year poorer in wind than years here on the average, 2015 has made up for it in all respects,” he said. “Wind farms of Eesti Energia produced 124,466 megavatt-hours of electric energy during the first six months, which is more by a quarter than in the first half of 2014. By way of example, an amount of electric energy like this is consumed by 41,488 households of average consumption in a year.”

Increased production of wind energy makes it possible to save Estonian oil shale for high value-added activities, such as production of shale oil. The amount of wind energy generated during the first six months of the year is equal to the amount that can be produced by burning 146,430 tons of oil shale and releasing 117,144 tons of carbon dioxide into the air. More than 100,000 barrels of shale oil can be produced from 146,430 tons of oil shale.

Eesti Energia is the second largest wind energy producer in Estonia. The state-owned company has four wind farms, located respectively in Narva, Aulepa, Virtsu and Paldiski.

Source: BNS via Estonian Review

Czech science centre buys Estonian exhibition

The Ahhaa science centre based in Estonia’s second-largest city Tartu has sold its exhibition “Sail or Sink?” for 300,000 euros to a science centre in the Czech Republic from where it will be rented forward to Poland, the daily Eesti Päevaleht reports.

This is the first time for an Estonian exhibition to be sold, the paper notes.

Ahhaa started lobbying for selling or renting the exhibition last November when directors of 50 European science centres gathered in Tartu for a conference, Eesti Päevaleht says. Board member of Ahhaa Andres Juur told the paper that then a spontaneous auction was mounted which was won by a large British science centre. However, the British eventually changed their mind. After that the Czech Techmania showed interest and the agreement was signed at the end of June.

Juur declined to disclose the exact value of the agreement but said it was around 300,000 euros. However, this does not mean a big profit. “We earned back about as much as we put in with the sale,” he said but added that selling rather than renting was the right decision.

It is planned to open the exhibition in the Czech Republic already on Aug. 20.

“Sail or Sink?” that cost over 200,000 euros to mount was on display at both Ahhaa and the Seaplane Harbour in Tallinn for half a year, attracting around 275,000 visitors. It features 14 hands-on exhibits installed in large containers, where visitors can see, read and experiment with how the forces of nature act at sea and how they have influenced maritime history.

Source: Baltic News Service via Estonian Review

Estonians paying less in cash

More Estonians than ever are using debit cards to make payments, instead of cash.

Almost 700,000 card payments are conducted in Estonia every day, over three times more than 10 years ago, the country’s central bank said on Friday.

This forms 75 percent of all internal payments in the country, compared to 65 percent in 2005.

The number of cash withdrawals has also declined by roughly 35 percent.

Estonia’s success as an e-state started largely due to introduction of online banking in the 1990s. Today, practically all banking transactions are done electronically.

Source: ERR via Estonian Review


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