Estonian Competitiveness Report 2015

Summary of the Estonian Competitiveness report published by the central bank of Estonia

• Estonian consumer price inflation was below average in 2014. Estonian price competitiveness strengthened in the markets of countries in the euro area, where Estonian relative prices fell, but it weakened in several other markets. Price-based competitiveness declined most in relation to Russia, while local inflation was not enough to compensate for the fall in the rouble, meaning that Estonian relative prices increased in the Russian market.

• The IMF methodology for the equilibrium current account position and the real exchange rate implies that the real exchange rate of the euro could be around 6% undervalued for Estonia, which should continue to favour opportunities for growth for Estonian exports.

• Products from different countries compete not only on price but also on other, qualitative, factors. Those European Union countries where prices and costs are rising faster than in other countries managed to increase export market share more.

• The share of Estonian exports of goods and services in global exports increased by a factor of 2.1 in current prices in 2000-2013 and by a factor of 1.5 at constant prices. The most recent data from 2013 show that the market share of Estonian exports was still increasing at current prices but had shrunk slightly at constant prices. This means that the value of Estonian exports only grew because of rises in relative prices.

• The role played by non-price factors in the growth of the market share of Estonian exports is shown by several expert analyses of export quality and complexity. The quality of Estonian exports has improved over the years, and relatively faster than in many other European Union countries. Improved quality allows prices to be raised without any threat to competitiveness.

• The complexity of exports also helps explain how relative growth in export prices shows only improvement in the qualities of export products. This indicates that Estonia is capable of achieving GDP growth that is better than average. Faster growth needs faster movement in the direction of more complex export products.

• Micro-level data show that the export premiums in the productivity and wages of Estonian exporters are large. The productivity of Estonian exporting companies is on average 25% higher than that of non-exporting companies and exporting companies pay 15% higher wages on average. These premiums have shrunk since the recession though.

Source: Eesti Pank

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