Estonia’s highest ever surplus – 5.9% of GDP

The current account of the Estonian balance of payment recorded its highest ever surplus in the second quarter of 2015 at 308 million euros, or 5.9% of GDP, which is more than two and a half times larger than in the same quarter of last year. The main contribution to the growth in the surplus came from the primary income account, which shows labour and investment income, and from the trade account. Having been in deficit to a large degree for years, the primary income account showed a small surplus in the second quarter, while the deficit on the goods account decreased1. Exports and imports of goods and services had a positive balance of 295 million euros on the current account, with exports 3% below their level of the same quarter in the previous year, and imports 4% below theirs.

The deficit in the export and import of goods fell by around one fifth over the year to 196 million euros as imports declined faster than exports did. Imports of goods crossing the Estonian border were 242 million euros larger than exports going the other way. The turnover of goods under merchanting, which are those bought abroad by Estonian merchants for sale in a third country, made up 14% of the turnover of exports and imports of goods, and sales of goods under merchanting exceeded purchases of such goods by 46 million euros.

Exports and imports of services were down by 1% and the surplus from exports and imports of services was the same size as in the second quarter of last year at 491 million euros. There was a decline in the surplus of travel services and transport services, two important services sectors, while the positive balance of other business services increased its share slightly. The surplus in construction services increased almost fourfold at the same time.

The investment and other income account recorded a net inflow in the second quarter2 as a sharp fall in the outflow of direct investment income meant that the inflow of income exceeded the outflow by 13 million euros. The outflow of direct investment more than halved as income tax on superdividends3 was paid to the Estonian state.

The net inflow of labour income and subsidies for production from European Union funds increased somewhat, but remained at about the same level as last year.

The surplus on the capital account increased in the second quarter mainly because of the 69 million euros received in investment support from the European Union Structural Funds.

The net total of the current and capital accounts, or net lending (+) or borrowing (-), saw a surplus of 376 million euros in the second quarter, meaning that the Estonian economy was a net lender to other countries. This was reflected as a net outflow of capital on the financial account of the balance of payments as foreign direct investors reduced the equity of their direct investment companies in Estonia. Credit institutions brought capital in from their external accounts, which was reflected on the cash and deposits account under other investments, with the result that the external assets of the central bank, reflecting the deposits of the banks at the central bank, increased.

Eesti Pank will release the statistics for the balance of payments and the external debt for the third quarter together with a comment on 9 December.

1 All comparisons have been drawn on an annual basis, if not indicated otherwise.

2 Net flow = inflow minus outflow. If the inflow exceeds the outflow, there is a net inflow, if the outflow exceeds the inflow there is a net outflow.

3 Superdividends are on-off dividend payments that are treated as a reduction in equity and shown in the financial account.

The structure of the current account

Net lending (+) and net borrowing (-) and the total current and capital account

 

Source: Bank of Estonia

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