The current account deficit replaced by a surplus in 2Q

Economic growth in Estonia in the second quarter was expected to be based primarily on domestic demand. Growth based on domestic demand has generally meant for Estonia a larger or smaller current account deficit. Given that, the small surplus in the second quarter of around 1% of GDP of the quarter was somewhat surprising. The cause of the surplus is the surplus on the foreign trade account, while the net outflows of primary and secondary income pushed the balance rather towards deficit. For GDP growth this means more balanced growth than had been expected, as the contribution from net exports was positive for a long time.

Exports of services saw relatively robust growth from the levels of the previous quarter and of the same quarter of last year. Imports of services grew little during the quarter and the surplus on the services account increased to 8.7% of GDP in the second quarter. Both the imports and exports of goods fell again, and the deficit on the goods account stood at 4.9% of GDP, which was lower than the average for 2013. The continuing fall in goods imports since the third quarter of last year can partly be explained by weak investment activity.

The question arises again of whether the moderate deficit on the current account in recent years was more a consequence of low levels of investment activity or of structural changes and less capital-intensive growth.

See also: The Estonian balance of payments, international investment position and gross external debt for the second quarter 2014

Source: Bank of Estonia

Author: Andres Saarniit, Economist at Eesti Pank

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