Convergence report sets stage for Estonia joining euro zone

In the convergence report released today, the European Commission made a proposal to the EU finance ministers to invite Estonia to join the euro zone during their meeting in July. According to the report, Estonia sustainably fulfils all the measurable Maastricht criteria, has one of the strongest budget positions in the European Union and is also one of the most trustworthy nations in the Union.
Finance Minister Jürgen Ligi stated that today’s evaluation of Estonia’s economy and finances sets the stage for joining the euro zone. “Being a part of the euro zone will make Estonia more trustworthy and give a strong boost to the Estonian economy. However, we have no illusions that a conservative financial policy will somehow become less important to us. We are pleased that in the report the European Commission gave high praise for Estonia’s choices during the crisis,” stated Ligi.
The final decision to invite Estonia to join the euro zone will be made on 13 July by the Ecofin, or Economic and Financial Affairs Council.

Source: Estonian Review

Innovativeness of enterprises continually at good level

According to Statistics Estonia, the data from the innovation survey show that 48% of enterprises covered with the survey were technologically innovative in 2008 and 35% of them had implemented during the last three years organisational or marketing innovation. For a quarter of enterprises the innovativeness resulted in environmental benefits either within enterprise or for customer.

An enterprise was considered technologically innovative if during the last three years it had introduced to market a new or significantly improved product, implemented a new or significantly improved process, or had expenditure on activities specifically undertaken to develop and/or implement a product or process innovation.

It can be noticed that the general picture remained quite stable during 2004–2008, only for services the period when active innovative activities took place in connection with Estonia’s entering the European Union is distinct. Drawing comparisons it should be emphasised that the European Union mean values for technological innovativeness equalled 41% for industry and 36% for services in 2006 inferring that Estonia belongs continually to the group of successful Member States.

The share of technologically innovative enterprises, 2000–2008

Diagram: The share of technologically innovative enterprises, 2000–2008

As earlier the survey demonstrated that innovativeness in Estonia similarly with the European Union is higher for enterprises belonging to concerns (even in the case of national concern — 60% in 2008), having foreign equity or employing higher number of people.

Activities with high technological innovativeness, 2008
Activity The
share of
enterprises, %
Manufacture of basic pharmaceutical products and pharmaceutical preparations 100
Insurance, reinsurance and pension funding, except compulsory social security 94
Telecommunications 87
Manufacture of chemicals and chemical products 84
Manufacture of beverages 76
Financial service activities, except insurance and pension funding 75
Manufacture of other non-metallic mineral products 75
Manufacture of computer, electronic and optical products 74

The manufacture of leather and wearing apparel, as well as the land transport ended the ranking list of activities with innovativeness below one third. To vindicate the leather and wearing apparel manufacturing it should be noted that changes in design are classified as marketing not product innovations.

The additional module of the current survey dealt with innovations with environmental benefits. 28% of enterprises declared that they have regular procedures in place to identify and reduce environmental impacts. One third of those introduced or significantly improved procedures under consideration during 2006–2008. The existence of voluntary codes for environmental good practice within enterprise’s activity and need to comply with existing environmental regulations were considered as main reasons for implementing innovations with environmental benefits.

Non-technological innovations — organisational and marketing ones — were first time handled in core questionnaire. In the case of previous survey the supplementary module with different questions served the purpose. For that reason the data on non-technological innovations from the current survey are not comparable with previous ones. However, again the close ties between different kinds of innovation were verified: 56% of technologically innovative enterprises had implemented organisational or marketing innovation and only 16% of technologically non-innovative ones.

The Community Innovation Survey is regularly carried out by statistical organisations of all European Union Member States on the basis of the harmonised methodology. The innovation survey does not cover the sectors as a whole and is dealing with enterprises with at least 10 persons employed. In the case of industry only the construction activity was excluded in 2008, as for services the following activities were included: wholesale trade, transportation and storage, information and communications (except film and TV production and broadcasting), financial and insurance activities, architectural and engineering activities, technical testing and analysis. In 2008 the frame of the survey consisted of 2,102 industrial and 1,921 service enterprises.

Innovation survey serves as a kind of litmus paper which shows an enterprise’s attitude to reporting statistical data. It is emphasized in the guidelines of the survey that questions of the survey should be answered by someone responsible for development on the management level and not by a financial manager. But in fact, the task concerned was often assigned to an accounting clerk who, without a second thought, states that there is no innovativeness in the enterprise disregarding the fact that the enterprise’s website or annual reports reveal something totally different. Thus, hundreds of enterprise managers had to be spoken in order to ensure the quality of statistics and obtain true answers to the questions on innovativeness. Certain complexity was added to the realization of the survey by the fact that the posted questionnaires were replaced by filled online ones on the Internet site.

Source: Statistics Estonia

The economy is recovering on the support of exports

The flash estimate of Statistics Estonia shows that Estonia’s first-quarter GDP was 2.3% smaller on the same period a year ago. The contraction was the same size also compared to the fourth quarter of 2009. The recovery of GDP growth is still fickle as a result of growing external demand on the one hand and weak domestic demand on the other.

The first-quarter GDP received a positive impact from increasing exports. Goods exports in current prices went up by nearly a sixth compared to last year. As expected, the GDP of the first quarter was affected by the usage of stocks that were accumulated at the end of 2009, before the January tax increases.

According to the Estonian Institute of Economic Research, capacity underutilisation is still evident in industry, where just two-thirds of resources were used as at April. Therefore, the majority of industrial sectors do not need to make extra investments to cater for the current demand.

Adjustments made in companies to cut costs and increase efficiency are stepping up productivity and profitability. This helps create preconditions for the start of a new investment cycle. In order to avoid possible growth difficulties in future, companies need timely and sufficient financing possibilities to maintain or expand their production capacity.

Domestic inflationary pressures continue to be weak as a result of modest private consumption. Growing unemployment resulted in declining disposable income, so the low in retail sales continued in the first quarter. Although the number of registered unemployed decreased in April, unemployment is still high. Thus, private consumption is not expected to improve considerably in the near future.

Eesti Pank’s spring forecast, which expects economic growth to be 1% in 2010, is in line with the first-quarter growth.

Source: Peeter Luikmel, Eesti Pank, economist