Retail sales grew in August, mainly in grocery stores

According to Statistics Estonia, in August 2012 compared to August of the previous year, the retail sales of goods of retail trade enterprises increased 7% at constant prices. The retail sales have shown a stable seven percent growth for the third month in succession compared to the same month of the previous year.

In August 2012, the retail sales of goods of retail trade enterprises were 391.8 million euros. The increase in sales was mostly influenced by grocery stores, where the retail sales increased 8% compared to August 2011. The growth in retail sales of these stores was partly influenced by the deceleration in the price increase of food products. If in August 2011 the annual price increase of food products was 11%, then in August this year 4%. Due to a large share, grocery stores covered half of the total increase of the sales of the retail trade enterprises.

The retail sales growth rate in stores selling manufactured goods slowed down slightly compared to the previous months. If in June, the retail sales of those stores increased 10% and in July 9% during the year, then in August the growth was 6%. The sales increased in most economic activities. Only the retail sales in stores selling household goods and appliances, hardware and building materials were 4% smaller than in August of the previous year. The fall in the retail sales of these stores was influenced by the high reference base of the previous year. In August, the retail sales of stores selling textiles, clothing and footwear increased the most, where the retail sales increased 15% compared to August of the previous year. A higher than average increase also occurred in the retail sales of pharmaceutical goods and cosmetics (14% growth), retail sales via mail order or the Internet (13% growth) and retail sales of non-specialized stores selling predominantly industrial goods (10% growth).

Compared to the previous month, in August the retail sales in retail trade enterprises decreased one percent at constant prices. According to the seasonally and working-day adjusted data the retail sales stayed at the same level compared to the previous month. During the eight months of 2012 (January–August), the retail sales in retail trade enterprises increased 8% at constant prices compared to the corresponding period of the previous year.

In August the revenues from sales of retail trade enterprises were 491.5 million euros, out of which the retail sales of goods accounted for 80%. Compared to August 2011, the revenues from sales increased by 11% at current prices. Compared to the previous month, this indicator stayed at the same level.

See graph Retail sales volume index of retail trade enterprises and its trend, January 2002 – August 2012 (2005 = 100) here

Source: Statistics Estonia


Wage expectations in an ageing society

The draft budget for the next year is on the way to the parliament. Since Estonia’s public finances are relatively sound, the main issues are related to the future rather than to the 2013 budget.

The government’s continuous commitment to reaching a budget surplus is commendable. The only drawback is that compared to the plans of 2011, the surplus has been postponed until 2014. This deserves criticism, because economic developments (that is, the receipt of budget revenues) have been even somewhat favourable than expected. One can only hope that the new target will be adhered to in drafting the budget for the next year.

A budget surplus is the essential goal, since sound and far-sighted fiscal policy (that is, accumulation of savings) increases the credibility of Estonia’s economic policy, which, in turn, improves the wellbeing of the people in the longer run.

In addition to the overall objective, a series of inescapable concerns needs to be considered as well. The population is ageing, which means that in the longer perspective, the number of the employed will decrease, but medical and pension costs will grow, whereas the pension system already needs state support and it makes no sense to increase the Unemployment Insurance Fund surplus any further. Contributions from the EU structural funds make up a significant share of state revenue and in the future they will only decrease. Such problems indicate the need to fundamentally reform budgetary expenditure and revenue, which will be far easier when the budget is in surplus.

With Estonia being a small and open economy, our economic growth will continue to be volatile also in the future, so we need to prepare for harder times. Therefore, the goal to restore and increase reserves established in the government’s budget documents is very important. That reserves are indispensable was also proved by the recent crisis experience, when reserves helped us somewhat cushion the slump. However, restoration of reserves can be seriously talked about only when the budget posts a surplus.

Among other things, budget deficit is justified by the need to alleviate the impact of hectic economic developments. When times are tough, the government spends more than it earns in order to boost demand, whereas expenditures are limited in better times to reduce aggregate demand. The government, citing similar reasons, has also started to put more value on structural budget balance. This is an indicator measuring the state of the budget without business cycle influences or one-off factors (for example, revenue from the sale of emission allowances). The structural budget balance indicator is a good landmark in solving the task of balancing the economy. By now, it should be clear to everyone that signs of a overheating and imbalances may occur very suddenly.

Though measuring structural budget balance does have its goal and place, it says nothing about actual cash flows. It is difficult to measure structural budget balance in real time and it also gives plenty of room for interpretation in justifying excessive expenditures, both statistically and theoretically. How often do we see a government that thinks good times have arrived? This is definitely one of the reasons why several countries are experiencing difficulties. Therefore, nominal budget balance continues to be the highest fiscal goal. Like in case of household budgets, it is actual cash flows that set limits on spending.

The Estonian economy has recuperated faster than expected. The first half of the year was relatively successful, allowing an upgrade in growth outlooks for 2013. This is why the Ministry of Finance’s recent economic forecast may be interpreted as if the government has more tax revenue at their disposal when drafting the next year’s budget than expected in spring. However, the “extra funds” should be used to reduce the deficit, not to increase expenditure.

Risks to Estonia’s economic growth have disappeared nowhere. Some experts are of the opinion they have even grown recently. Global trade outlooks are still uncertain: the external environment has clearly deteriorated in recent months, and there are very few analysts who expect positive surprises from the external environment in the years to come. The European Central Bank’s recent forecast also shows that risks to growth can only increase. Such uncertainty calls for caution rather than optimism. Estonia’s economy is like a patient who has recently suffered from a serious illness. Irrespective of the recovery, its health is still fragile and there is the threat of falling ill again if we are not careful.

At the same time, there are more and more various desires and expectations that are in no way consistent with the public revenue growth potential. It is a fact that budget expenditure can be increased only in line with revenue growth. Looking further ahead, it is important to bear in mind that the average economic growth rate will be much slower than in the past decade’s pre-crisis years. Even when the goal of a consolidated budget surplus is reached, government spending cannot be expected to grow more than 5-6% a year. And this is an optimistic view. In the coming years, rapid expenditure growth will be kept in check by the need of reaching a budget surplus and by some earlier promises. As a result, a steep increase in expenditure would take a toll on efficiency or something else. It is unrealistic to expect it to happen within a short time span.

Author: Ülo Kaasik, Deputy Governor of Eesti Pank

Source: Bank of Estonia

Published in the newspaper Postimees on 21 September 2012

Estonia spends 1,8 pct of GDP on defence

On only their fifth day on the job, things got hot for the two Czech Gripens patrolling over Baltic airspace. They had to run a check on an airplane that was flying over Estonia on 6 September and had digressed from its assigned flight path. 

In the course of the regular rotation of NATO members, the four Czech planes and 64 personnel stationed at a base near the Lithuanian city of Siauliai will have to get used to such incidents as they carry out their task of protecting the airspace of the three Baltic countries. For the alliance, these patrols are nothing exceptional: six of the 28 member countries don’t have supersonic jets. At a time of economizing and budget cuts, such NATO assistance – or division of labor – has been labeled as “smart defense.” With some simplification we can say that the goal of this approach is to defy the laws of physics: to do more with less.

 The alliance calls on member states to dedicate at least 2 percent of their gross domestic product toward defense. Among the Baltic states, hard hit by the crisis, only Estonia gets close to that figure with 1.8 percent, while Latvia currently allocates 1.2 percent and Lithuania a mere 0.8 percent. At the same time, the region’s citizens know very well from their historical experiences how vulnerable they are. Four years ago, the fallout after a series of Russian and Belarusian military exercises showed that the northern part of the alliance didn’t have a joint-defense plan, and things started to move in that direction. Various plans appeared and exercises at sea, on land, and in the air took place.

Read more from Transitions Online

Estonian economy will grow 2.2 pct this year and 3 pct next

The Ministry of Finance forecasts that the economy of Estonia will grow 2.2 per cent this year and 3 per cent in the next with the support of the better growth outlooks of the country’s main trade partners as well as the increase in domestic investments and consumption. In comparison to the spring forecast, the development of economy is more positive than expected – faster recovery of employment has maintained the security of consumers and entrepreneurs, which has resulted in private consumption growing more than expected.

Compared to the spring forecast, the Ministry of Finance has raised its economic growth forecast by 0.5 percentage points as a result of the positive first half of the year. The speed of growth in the next year remains at the previously expected level. “All signs indicate that despite the insecurity of global economy, we have reason to be moderately optimistic about the outlooks of Estonia,” said Minister of Finance Jürgen Ligi. “The good condition of our closest neighbours also supports this. However, we must avoid significant increases in our state budget expenditure, as in the long run it would put the financial condition of the state under threat and thereby decrease the security of consumers and companies.”

The gross domestic product (GDP) of Estonia continues its stable growth and will come close to the level of average long-term growth during the forecast period. Export will remain the engine of economic growth in the coming years. Assuming that the debt crisis will abate, we can expect the main export markets to gradually liven up in 2013, which will accelerate the growth of export and stabilise it at the level of 6-7 per cent in the next four years.

Domestic demand will increase faster than GDP this year, but it will slow down to 2.9 per cent in 2013 as a result of the decrease in the income for sale of CO2 quotas and investments made on the account of EU funds. In addition to the general government sector, companies in foreign ownership and the energy sector will also increase their investments in the next few years.

The development of the labour market has been more positive than expected. The number of employed people increased rapidly in the first half of the year and according to the forecast, employment will increase by 15,000 people or 2.4 per cent this year. Unemployment is also decreasing faster than forecast – it has gone down considerably compared to the peak it reached at the time of recession, and will fall to 10.4 per cent in 2012. Unemployment will decrease to 8.9 per cent in the next year and 7.8 per cent by the end of the forecast period.

The improvement of the economic situation of companies has allowed them to raise the salaries of their employees, and the average salary increase will accelerate to 5.6 per cent this year. Salary increase will remain at the same level in the coming years and increase slightly in the end of the forecast period.

Prices will increase by 3.9 per cent in 2012, 3.5 per cent in 2013 and stabilise at 2.8 per cent in the subsequent years. The increase in housing expenses will make a large contribution to inflation this year. Approximately half of this increase comes from the increase in heating expenses as a result of the high liquid fuel prices on foreign markets. The continuing increase in salary income and the increased confidence of consumers support the growth of consumer expenditure and thereby also a slight acceleration in the price increase of services. The price increase of heat and fuel will stop as suggested by the decreasing oil futures, which will slow down the price increase in the next year. The electricity market will open in the next year and its impact has been considered in next year’s inflation.

Failure of foreign demand to recover to the expected extent is a threat to the achievement of the forecast economic growth. There are reforms going on in the eurozone that will strengthen the economy considerably, but it is possible that developments in the next year will be more volatile than expected, which is also suggested by the deteriorating economic sentiment in Europe and the rest of the world. This may reduce demand for Estonian goods and services, and it also demands caution in the preparation of budget plans for the next year. At the same time, the growth outlooks of Estonia’s export partners are considerably better than the EU average and the main case scenario of the forecast do not consider significant backlashes in the external environment.

The Ministry of Finance has also adjusted the revenue and expenditure forecast of general government on the basis of the macroeconomic forecast. Tax receipts will increase in comparison to the approved state budget and this will contribute to this year’s budget deficit of the general government decreasing to 1.2 per cent of GDP. According to the forecast, the budget position of general government should reach balance in 2014, and achieve a surplus of 1.3 per cent of GDP by the end of the forecast period in 2016. Structurally, the budget position is in a surplus during the entire period and will reach 1.5 per cent of GDP in 2012. This complies with the government’s goal to achieve a 1 per cent surplus by the same time. Structural surplus during the entire forecast period indicates that there are no sustainability problems in the budget and the nominal deficit in the coming years is a result of temporary factors.

Source: Estonian Ministry of Finance

Citizens can track online taxes spent by local authorities

As a part of the pilot project of a cloud service, everyone can now take a look at the financial health and expenditure of Estonian local authorities online. The goal of the service is to bring the state closer to its citizens and to make local government transparent in the entire country. The state expects active citizens to attach their own convenience solutions to the created cloud applications and to take some of the development of public administration upon themselves by way of civil initiative.
The service at is unique in the world and was created at the initiative of the Ministry of Finance and the Ministry of Economic Affairs and Communications, and developed with the assistance of Estonian telecommunications company Elion. Counsellor of the Ministry of Economic Affairs and Communications Andrus Aaslaid said that cloud-based services are a massive step forward in the development of an IT state. “Although other countries have started to catch up with us in the development of e-state, cloud-based information applications are the solutions that currently allow us to create a completely new quality,” he noted. “As far as we know, no other state has yet managed to make the financial status and expenditure of all of its local authorities visible and ready for analysis to such an extent and on such a level. I would like to hope that this is a boost to the state’s e-services on a broader scale.”
Andrus Jõgi from the Local Governments Financial Management Department of the Ministry of Finance explained that various databases of the state have been accessible to the public on the basis of Estonian laws in the past, but using these databases was so complicated and time-consuming that the only people who did it were those who needed the specific data for their work. “We wanted to make the data easily accessible to all people, which is why we and Elion created this virtual server-based solution or transferred the financial data of local authorities into a cloud where everyone can view, download, compare and analyse it.”
Another important aspect that was considered during the development of the service is that it must be possible for third parties to add their applications, and the service must also meet future needs and, for example, make it possible to obtain data from several national databases at the same time.
The first solution of civil initiative already exists. Elion’s further development of the cloud application, called LEO (Läbipaistav Eesti Omavalitsus / Transparent Local Government in Estonia) is already accessible at and was created by Estonian business consultation company Infovara. CEO of Infovara Maigi Peeduli says that the application is still a commercial solution, which will remain accessible to everyone free of charge at least until the end of 2012. “This is a convenience service, which is attached to Elion’s application and which is ever more user-friendly,” added Peeduli.
Source: Estonian Ministry of Finance

Housing loan interest rate dropped to 2.7 pct

In August, the amount of new corporate loans and leases rose by almost 25% compared to last year. The relatively strong growth was primarily due to the increase in the short-term financing. Short-term corporate loans and leases granted by banks totalled EUR 546 million in August. This is the highest level of recent years and 34% more than a year ago. Loans to trading companies constituted the largest share (39%) of the total turnover of corporate loans. In recent months borrowing in that sector has also been notably stronger than in the corporate sector in general. Loans to transport businesses have also grown significantly year-on-year.

Activity in the housing loan market remained at the level seen also in previous months. Housing loans granted to households amounted to EUR 54 million in August, which is 22% more than a year ago. The annual growth in households’ car leasing also remained strong, reaching 26%. 

The loan and lease portfolio of Estonian companies and households increased by EUR 4.5 million in August. In April 2012, the volume of the banks’ financing portfolio started to grow again following a decline that had lasted for more than three years. In August, both the stock of corporate loans and the stock of housing loans grew. At the end of the month the total volume of corporate and household loans and leases was EUR 14.6 billion, which is only 0.1% less than a year ago. The change in the loan portfolio was influenced by the reclassification of some non-profit associations which meant that they were considered to be part of the government sector. If the reclassification had not taken place, the annual growth rate of the financing portfolio of the non-financial sector would have turned positive already in August. 

The quality of the loan portfolio did not change much in August. The level of loans overdue for more than 60 days decreased modestly, by EUR 4 million, and their share in the loan portfolio was 4.3%, i.e. unchanged from the previous month.

The average interest rate on housing loans decreased to 2.7% in August. The drop of more than 0.2 percentage points was due to the fall of the Euribor rate. The average interest margin of housing loans remained 2%, i.e. at the average level of 2012. The average interest rate on long-term corporate loans remained unchanged at 3.4%.

The annual growth in deposits picked up in August and reached 11%. Deposits increased by EUR 58 million to EUR 8.5 billion. Stronger growth in August was due to the increase in corporate deposits, just as in July. However, household deposits decreased, which is characteristic of summer months. 

Financial sector statistics and its publication schedule are available on the website of Eesti Pank at

Read more from Bank of Estonia website

Author: Jana Kask, Head of the Financial Sector Policy Division of Eesti Pank

See following graphs from the original source:
Figure 1. Corporate loans and leases issued within the month
Figure 2. Monthly change and annual growth of household and corporate loans and leases in Estonia (households include private individuals and non-profit associations)
Figure 3. The weighted average interest rate on housing loans and long-term corporate loans issued within the month and 6-month Euribor

Central banks support business investment

On Wednesday, Governor of Eesti Pank held a presentation at the conference “Äriplaan 2013”. He stressed that five years of crisis have proved the strength of the euro area and bolstered both Estonia and the country’s undertakings.

“We have all learnt from the crisis and Estonia, as well as the euro area as a whole, stand on a much firmer footing than before. Buffers provided Estonia with great advantages at the onset of the crisis and today we know that sufficient reserves and a revision of spending help face the future with more courage, even though growth outlooks are still meagre,” Hansson said.

He mentioned that uncertainty regarding euro area economic developments continues to be extraordinarily high, but the economic growth of our closest neighbours and major trading partners is projected to continue. “For businesses, it means there are still opportunities – economies are growing, albeit at a slow pace. The low interest rates established by central banks support business investment and the government has maintained Estonia’s attractiveness to investors,” Hansson said.

He added that pills for euro area economic credibility are in governments’ medicine chest. “Central banks in the euro area have taken a series of non-standard measures to alleviate risks, increasing risks on their own balance sheets. The countries in difficulty can obtain trust needed for investment and job creation only by reforms and sorting out their budgets,” said Governor of Eesti Pank. According to Hansson, the task of central banks is limited to ensuring price stability, which provides the basis for long-term economic growth.

 Source: Bank of Estonia

Power tariffs to go up by 50 – 60 pct

Estonian power company Eesti Energia announced that the price of electricity will go up between 50 and 60% since January when the electricity market is fully liberalised.

Households will be one of the first to be hit hard by new tariffs.

Electricity makes up about one-third of the power bill, the other components being network fees and renewable energy fees. 

The company said yesterday it will offer three different price packages: Fixed, Combined and Variable, plus the general service where households buy electricity without a contract.

Read more from BBN

Finns hire Estonian e-health expert

Madis Tiik, former head of the Estonian e-health foundation, has been hired by SITRA, Finnish innovation fund, as senior adviser.
His first job is to develop the online medical record system in Finland. 

The Estonian e-health system cost EUR 10m to develop, while the Finnish project is estimated to cost EUR 1.8b.

Read more from BBN

Copterline to re-launch Helsinki-Tallinn route

Finnish helicopter taxi company Copterline is relaunching flights between Helsinki (Heinasaari) and Tallinn (Linnahall) in October, after a three-month hiatus, writes Kauppalehti.

Copterline stopped service in June as its helicopter went into maintenance for three months.  The next break will be after Christmas and before January 6.

The demand for the flights is high and this year the company will have around 18,000 passengers. This year’s turnover will amount to around 2.5-3 million euros.

Read more from BBN